March's stock market spring back threatens to turn into April's pullback.
The ended March with a 6.6 percent gain in its best month since October, and it began April on a strong foot Friday, gaining 0.6 percent to 2072. While April is typically one of the best months of the year, the combination of an expected poor earnings season and March's heady market gains could result in more lackluster returns.
"We think, given the more opaque nature of the news flow into April, you're in for a period of consolidation, a pullback on the way to what we still think are new highs," said Julian Emanuel, equity and derivatives strategist with UBS.
In the week ahead, traders will be focused on handicapping the Fed's next move and a few pieces of economic data, including ISM services and trade data. The minutes from the last Fed meeting are released Wednesday. Earnings season, where the real trouble could begin, is not until a week later.
"Even though the news was very good (on jobs Friday), you have this vacuum going into April. If you think about it, if anything, the Fed message was unclear this week, and is likely to be less clear in April. The political situation, if anything is going to be more uncertain in April than it was in March," said Emanuel.
The field of Republican candidates could continue to narrow in April, and analysts expect at some point that the market could react to the presidential race. For now, analysts say the market is pricing a victory by Democrat Hillary Clinton, and if that begins to look unlikely, the market will respond to the new perceived leader.
There are also more than a half-dozen Fed speakers on tap for the coming week, as well as an unprecedented roundtable Thursday afternoon featuring Fed Chair Janet Yellen and her three predecessors — Ben Bernanke, Alan Greenspan and Paul Volcker.
"It could be interesting but it's not going to move the needle on the monetary policy outlook," said Stephen Stanley, chief economist at Amherst Pierpont. "The FOMC minutes will be important, especially after Yellen's speech last week. We're still trying to find out where the Fed stands right now. The question is, was she trying to push back on April, or are they really not raising rates for a long time?"
The markets rallied off of comments from Yellen in the past week, but some Fed watchers found her comments to be even more dovish than expected. Her comments that the Fed would be cautious and that it sees risks pushed back market expectations for a rate hike, and helped weaken the dollar. The dollar index was down 1.6 percent for the week.
Analysts have been anticipating a rocky ride for stocks during the first-quarter earnings period which begins in the following week with reports from Alcoa and JPMorgan.
"We presume to know this is the bottom of earnings. The reports are going to be horrible. Consensus expects first quarter to be down 7.7 percent," said Emanuel. The first-quarter results could be the worst since the financial crisis.
"It's going to be bad but the problem is the equity market has already discounted what we're about to know and so you've discounted all the worse news because the expectations were so low," said Emanuel.
Wunderlich Securities strategist Art Hogan said the earnings reports, as usual, could overshoot lowered estimates.
"We'll have a sector rotation but there's a credible possibility we'll have upside surprises," said Hogan. He said the data could help lift stocks. "What happened in the first quarter? We thought we were going into a recession. What's happening in the second quarter is things we didn't expect to see, are improving."
He pointed to the 215,000 jobs created in March and positives in the employment report, such as a 0.3 percent pickup in average hourly wages and a move higher in the participation rate.
What to Watch
Monday
Earnings: Walgreen Boots Alliance, Darden Restaurants
10 a.m. Factory orders
10:15 a.m. Boston Fed President Eric Rosengren
7 p.m. Minneapolis Fed President Neel Kashkari
8 p.m. Dallas Fed President Rob Kaplan
Tuesday
Earnings: Pershing Square Holdings
1 a.m. Chicago Fed President Charles Evans in Hong Kong
8:30 a.m. Trade deficit
9:45 a.m. Markit Services PMI
10 a.m. ISM Services; JOLTS
Wednesday
Earnings: Monsanto, Constellation Brands, RPM International, Apollo Education, Bed Bath and Beyond
2 p.m. FOMC minutes from its March 15-16 meeting
12:20 p.m. Cleveland Fed President Loretta Mester
6:30 p.m. St. Louis Fed President James Bullard
8 p.m. Dallas Fed President Rob Kaplan
Thursday
Earnings: CarMax, Ruby Tuesday, Duluth, Rite Aid, WD-40
8:30 a.m. Jobless claims
3 p.m. Consumer credit
5:30 p.m. Fed Chair Yellen with former chairmen Bernanke, Greenspan, Volcker on a panel hosted by International House
8:15 p.m. Kansas City Fed President Esther George
Friday
10 a.m. Wholesale trade