Investors eye economic data, stimulus measures as stocks rally stalls
Upcoming U.S. economic data and deadlines for renewing some fiscal stimulus measures in July could prove key tests for an equities rebound that has wavered in recent weeks.
The benchmark S&P 500 has risen about 34% from its late March lows. But those gains have slowed in June, as investors weigh expectations of further stimulus and improving data against a resurgence in coronavirus cases in the United States.
Investors will look to a raft of U.S. data next week - including reports on employment, consumer confidence and manufacturing - for clues on whether a nascent rebound in the U.S. economy remains intact.
Improvements in some economic indicators, such as home sales, manufacturing activity and an unexpected bounce in employment data last month, have bolstered investor confidence and helped extend the rally in stocks. But others, including scant declines in jobless claims, reflect a still-tentative recovery.
“There’s some evidence that the economy is expanding, but how robust it will be is an open question,” said David Joy, chief market strategist at Ameriprise Financial.
Market participants are also looking for clues on whether lawm akers are likely to push through more fiscal stimulus measures in coming weeks.
The House of Representatives passed another $3 trillion aid bill in May, but the Republican-controlled Senate has not taken up the House package and lawmakers are not expected to move toward another coronavirus bill until sometime in July.
One component of Congress’ fiscal aid, a $600 per week supplement to unemployment insurance payments, is set to expire at the end of July.
Michael Wilson, chief U.S. equity strategist at Morgan Stanley, said that bill is critical to the bank’s thesis for a “V”-shaped U.S. economic recovery.
“Our outlook for the economy is probably going to have to change” without further stimulus, he said.
The looming deadline has added to a cluster of worries that have limited stocks’ gains this month. U.S. stocks tumbled this week, including a more than 2% drop on Friday, in response to a resurgence in the number of cases of COVID-19, the disease caused by the novel coronavirus.
Even with that recent pullback, stock valuations, as measured by forward price-to-earnings ratios, are near their highest level since the 2000 dot-com boom.
Other sources of worry include a potential flare-up in U.S.- China trade tensions and political uncertainty stemming from the Nov. 3 presidential election.