The Fed and a big jobs report could drive the market in the week ahead, as investors watch rates

Published Fri, Mar 3 20232:16 PM ESTUpdated Fri, Mar 3 20232:23 PM EST

Patti Domm @in/patti-domm-9224884/@pattidomm

The seesaw-like tension between interest rates and stock prices should remain in play in the week ahead, as investors focus on comments from Federal Reserve Chairman Jerome Powell and the February employment report. In the past week, stocks struggled as Treasury yields rose but bounced Friday as yields came off their highs. The benchmark 10-year Treasury yield touched a high of 4.09% before sliding back below the psychological 4% level Friday. Rates move opposite bond prices. "The 10-year got below 4%, and the market rallied, so we're going to play that game even though earnings estimates continue to fall and the stock market is seemingly ignoring the trajectory of earnings and following the direction of rates," said Peter Boockvar, chief investment officer at Bleakley Financial Group. There are few earnings in the week ahead, so economic data will likely be a main driver for stocks, along with the comments from Powell. The Fed chairman testifies on the economy Tuesday and Wednesday morning before the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee, respectively. "It will of course be market moving, as it always is, and the market is going to look at this very simplistically - 'Give me some dovishness, and that's what I'll focus on. If I get some of that, it will allow me to block out any hawkishness,'" said Boockvar. Greg Peters, PGIM Fixed Income co-chief investment officer, said Powell may not be as newsy for markets as the February employment report Friday, since that will show whether or not the Fed's policies are starting to cool the economy and hot job market. Economists surveyed by Dow Jones expect 225,000 payrolls were added in February, after a shockingly high 517,000 jobs were added in January. The Friday report tops a brisk economic calendar of data, which also includes wholesale trade Tuesday, and international trade, job openings data and the Fed's beige book on the economy Wednesday. "I think it's more about the jobs data. It's data driven - full stop," said Peters. "Powell is just reflecting the news, so I'm not sure you'll be getting any unique insights there." Market pros are watching to see what types of revisions might be made in January's jobs data, as that might be encouraging particularly if February data falls in line with estimates or even below forecast. The strong January jobs report surprised markets, along with reports of stronger retail sales and higher inflation. The futures market began to price in a higher terminal rate, or end point for Fed rate hikes, and that now stands at close to 5.5% by October. "I'm expecting 200,000 jobs," said Mark Zandi, chief economist at Moody's Analytics. "I think underlying job growth is around 200,000. I don't see any reason to think it's going to be higher or lower. That's still too high. The Fed would like to see job growth sub-100,000. It's still too hot for them. I don't think we get below 100,000 until we see layoffs." Zandi said Powell's comments will be important, but they may not break any new ground. "I think he continues to espouse a hawkish perspective. He's got to be nervous about the strength of the economy and persistence of inflation and the lack of response in financial markets to his hawkish statements," said Zandi. "Financial conditions haven't tightened all that much. I suspect he's going to talk a tough game like he has and other officials have. I think they'd like to see the 10-year around 4% and the fixed mortgage rates around 7%. I think they want to keep them there until there's a very clear signal the economy is slowing, the job market is slowing and inflation is definitely heading back to target." Peters said the most important information for markets this month will be the Fed's forecast for interest rates, which is presented in a chart called the "dot plot" along with its economic projections. Those projections are expected to be updated and released at the end of the next meeting March 22. "It's never a settled market when the economic data are so important and hanging on Chair Powell's words, and the fact that the dot plot is really important. It just kind of speaks to why there's so much volatility," said Peters. "Now you have some people calling for 50 [basis point hike]..It's just a narrative that kind of continues to get away from the Fed, which is why I don't think it's important what Powell says. They've been kind of rearview mirror, kind of catching up the entire time." The futures market is pricing in a high chance for a quarter point, or 25 basis point hike in March. A basis point equals 0.01 of a percentage point. Week ahead calendar Monday Earnings: WW International, ThredUp, Trip.com, Lordstown Motor, Ciena, Grindr 10:00 a.m. Factory orders Tuesday Earnings: CrowdStrike , Stitch Fix, Casey's General Store, Squarespace, Dick's Sporting Goods , Thor Industries 10:00 a.m. Wholesale trade 10:00 a.m. Fed Chairman Jerome Powell testimony before Senate Banking, Housing and Urban Affairs Committee 3:00 p.m. Consumer credit Wednesday Earnings: Campbell Soup , Adidas, Brown-Forman, United Natural Foods, Vera Bradley, Fossil, Asana, Mongo DB 8:15 a.m. ADP employment 8:30 a.m. International trade 10:00 a.m. Powell testimony before House Financial Services Committee 10:00 a.m. JOLTS 2:00 p.m. Beige book Thursday Earnings: Ulta Beauty, Gap, BJ's Wholesale, John Wiley, Allbirds, American Outdoor Brands, Wheels Up Experience, JD.Com, Vail Resorts , American Outdoor Brands, Zumiez, DocuSign 8:30 a.m. Initial claims 10:00 a.m. Fed Vice Chair for Supervision Michael Barr Friday Earnings: Embraer 8:30 a.m. Employment report 2:00 p.m. Federal budget