The uncertainty around the coronavirus could continue to carry more weight in markets than corporate earnings or the consumer inflation and spending data expected in the week ahead.
Fed Chairman Jerome Powell testifies Tuesday and Wednesday in his bi-annual appearance before Congress, and investors are watching to see if Powell looks ready to move away from the Fed's neutral stand on interest rates.
Trading was volatile in the past week, with stocks sharply higher four of the five days as investors viewed the virus' progress to be less rapid than feared. But by Friday, the death of the doctor who discovered the illness and the addition of restrictions in Shenzen, a key manufacturing hub, were among the headlines that renewed investor fears. By Friday, 31,000 people were reported to be infected, mostly in China, but the amount of new cases slowed for a second day, according to the World Health Organization.
Stocks were lower Friday even after a much stronger-than-expected January employment report showed 225,000 jobs were created — 65,000 more than expected. Treasury yields, higher much of the week, edged lower Friday, and the 10-year yield dipped below 1.60% once more.
"The data has been very positive, but it's looking in the rear view mirror. It doesn't take into account any concerns about the coronavirus yet," said Michael Arone, chief investment strategist at State Street Global Advisors.
The electric car maker's stock shot up in parabolic fashion to a high of $968.99 on Tuesday, and was trading more than $200 below that on Friday.
"I do believe what happened in Tesla just does show some of the euphoria that got into the marketplace," said Matt Maley, Miller Tabak chief market strategist. Maley said some investors were comparing the surge higher to 1999, when the tech bubble was building. "I really laugh when people justify the rally by saying, it's not as crazy as it was in 1999."
Maley said now that the stock has "washed out" on the upside, there's likely more downside ahead.
"Some of these comments in the last couple of days ... talking about how the retail investors piled into the stock. Of course, that's usually a sign of a top as well," he said.
UBS Global Wealth Management's Chief Investment Officer Mark Haefele said next week could provide an important look at how the virus is impacting China's economy.
"Next week, Chinese factories are set to reopen after the extended Lunar New Year holiday, and important indicators to note will be to what extent the virus spreads as people resume travel back to work, and how long it takes for production to return to full capacity," he wrote, adding he still likes emerging markets despite the potential hit on their economies.
Economists expect the impact on the U.S. economy to be minimal, and say it should bounce back quickly.
Thursday's consumer price index and Friday's retail sales, industrial production and consumer sentiment will be watched closely by economists. ISM manufacturing data was stronger than expected in the past week, ending a period of contraction that started during the trade war.
The first quarter data has been providing a mixed picture of the economy, ahead of any impacts of the virus. Economists had been expecting manufacturing to get a boost after the trade deal, but Boeing's production shut down and now the virus could muddy that picture.
"I think there's been a little bit of chicken little about the economy for awhile. It ebbs and flows," said Arone, noting the Fed is the backstop if growth is choked. "Most of the indicators indicate the economy is going to chug along."
Powell testifies for two days before House and Senate committees on the state of the economy. Markets will be watching his comments closely to see what he has to say on the potential impact of the coronavirus. The markets have begun to price in more than one rate cut for this year, even though the Fed is not forecasting any.
"With the strong jobs, I think it's going to be more of the same. They raised the bar pretty high for them to signal any policy changes," said John Roberts, U.S. rate strategist at NatWest Markets. "They mentioned the coronavirus already. We could get more insight into what they're thinking about that. That's the main thing we're looking for."
China's central bank has been adding stimulus, and that was seen as a booster for global stock markets in the past week.
Capital Economics on Friday said it expects the coronavirus to cost the world economy $280 billion in the first quarter.
"If we're right, then this will mean that global GDP will not grow in [quarter over quarter] terms for the first time since 2009," the economists wrote in a note. "We assume the virus will be contained soon, and that lost output is made up in subsequent quarters, so that world GDP reaches the level it would have done had there been no outbreak by the middle of 2021."
Better-than-expected earnings have helped stoke the market's recent gains. There are dozens of earnings expected in the week ahead, including CVS Health Wednesday and Pepsi, Nvidia and Kraft Heinz Thursday.
So far, more than 70% of companies are beating forecasts and profits are growing by 2.3%, when including both companies that have reported and those expected to report, according to Refinitiv. At the start of the earnings reporting period, earnings growth was expected to decline.
Analysts will also look to companies to continue disclosing how the virus is impacting their operations. VF Corp, for instance, said 60% of its stores in China are now closed, and those that remain open have serous declines.
Vermont Sen. Bernie Sanders sent a shudder through markets when he began to rise in the polls ahead of Iowa's caucuses. But the chaos in declaring a winner in Iowa this past week, leaves the Democratic field wide open. So New Hampshire's primary Tuesday will also be important.
The left-leaning Sanders is viewed as negative for the stock market, but his main rivals, Joseph Biden and now Pete Buttigieg, who seems to have led in Iowa, are both moderates. Sanders leads in the New Hampshire polls and is expected to win his neighboring state.
"I think it's going to continue to matter for quite some time, until we get clarity at least on who the Democratic candidate is going to be," said Jon Hill, rates strategist at BMO. "[Buttigieg] would be much more business friendly than some of the other candidates. Does that make him more or less electable? If he's more that could be a market negative development."
The S&P 500 has gained 55% since Donald Trump became president, and analysts say he is viewed by investors as having the best policies for the stock market. Some Democrats, particularly Sanders, would raise taxes sharply.
8:15 a.m. Fed Governor Michelle Bowman
3:15 p.m. Philadelphia Fed President Patrick Harker
Earnings: UnderArmour, AutoNation, Virtu Financial, Daimler, Exelon, Goodyear Tire, US Foods, Sealed Air, Hilton, Martin Marietta Materials, Dominion Energy, Hasbro, Akamai, Lyft, American Movil, Western Union, Assurant, NCR, Lattice Semiconductor
6:00 a.m. NFIB
10:00 a.m. JOLTS
10:00 a.m. Fed Chairman Jerome Powell House financial services committee
12:15 p.m. Fed Vice Chairman Randal Quarles
2:15 p.m. Minneapolis Fed President Neel Kashkari
Earnings: CVS Caremark, CME Group, Softbank, Cisco Systems, Applied Materials, CyberArk Software, Tradeweb, Barrick Gold, Teva Pharma, Molson Coors Brewing, SunPower, Taubman Centers, Welltower, International Flavors and Fragrances, TripAdvisor, Change Healthcare, Manulife Financial, CF Industries
8:30 a.m. Philadelphia Fed President Patrick Harker
10:00 a.m. Powell testifies before Senate banking committee
2:00 p.m. Federal budget
4:30 p.m. Dallas Fed President Robert Kaplan
Earnings: Pepsico, Kraft Heinz, Fidelity National, AIG, Nvidia, Expedia, Datadog, Agnico Eagle Mines, GoDaddy, Mohawk, Yamana Gold, Mattel, Cloudflare, Chemours, Roku, Wyndham Hotels, Sonoco Products, Yeti, Nestle, Nissan, Barclays, Alibaba, Airbus
8:30 a.m. Initial claims
8:30 a.m. CPI
10:00 a.m. Senate banking hearing on Fed board nominees Judy Shelton and Christopher Walker
5:30 p.m. New York Fed President John Williams
8:30 a.m. Retail sales
8:30 a.m. Import prices
9:15 a.m. Industrial production
10:00 a.m. Consumer sentiment
10:00 a.m. Business inventories