intrigue may be over and done with, but market strategists say macro issues will continue to dominate trading.
The Federal Open Market Committee delivered its expected 25-basis-point rate hike Tuesday, pushing the key rate to 2.75%. The move marked the seventh straight time the Fed raised rates by that amount.
The Fed's accompanying statement contained the "measured pace" language that got a lot of attention ahead of the meeting. Dropping those words would have suggested the Fed was prepared to go hiking in 50-basis-point increments on the road to a less-accommodative range of 3%-4%.
The "measured" language may have stayed in, but the Fed's additional observation that "pressures on inflation have picked up in recent months and pricing power is more evident" spooked the market last week. Inflationary fears were further exacerbated when the government said the consumer price index rose 0.4% in February, vs. a 0.3% forecast. The core CPI, which excludes energy and food costs, rose 0.3%, compared with a 0.2% forecast.
Traders say the search for inflation -- and its impact on interest rates -- will continue to be the theme next week, especially with the arrival of the March payrolls number on Friday.
The market is expecting 225,000 jobs to be created, down from February's 262,000. The general rule of thumb is that job growth of 150,000 per month keeps up with the arrival of new entrants into the job market.
Should the job number prove too strong, analysts such as Paul Mendelsohn of Windham Financial say the Fed could speed up the rate hike process -- to the detriment of the stock market, which has been moving inversely to bond yields.
"Good news is bad news in this case," says Mendelsohn. "A higher-than-expected number allows the Fed to push rates up faster, whereas a lousy number will make them think twice."
Faster job growth and its impact on wages might hasten the Fed's rate-hike plans. Elevated oil prices, however, could put the Fed back on the so-called measured path. Higher oil prices act like a headwind to economic growth by draining cash from consumers' wallets.
Oil sold off from its highs above $57 last week, helping stocks to recover from the higher-than-expected inflation numbers. Bob Pavlik, portfolio manager at Oaktree Asset Management, says that oil could fall further in the near future, as "profit-taking often leads to more profit-taking."
Additional economic indicators slated for next week include the final fourth-quarter GDP revision on Wednesday. Analysts are expecting growth at 4%, up from 3.8%.
Along with the job numbers, auto and truck sales will be announced on Friday, which as it happens is also April Fool's Day. The automakers' results will receive extra scrutiny after
profit warning recently rattled the bond and stock markets.
The focus on macroeconomic issues should keep the market's attention off individual equities until earnings season starts in earnest in mid-April, with the release of first-quarter numbers from
. (Says Paul Nolte, market strategist at Hinsdale Associates, on the current inflation predicament and its relation to stocks: "Alcoa is laying off 2,000 people, so how inflationary is that?")
Earnings may be taking a back seat to economics for a little while longer, but there are a few companies set to report.
On Monday, drugstore giant
reports its fiscal second-quarter results. Analysts are expecting the company to earn 48 cents a share, up from 41 cents last year.
Quarterly earnings for Arizona-based education giant
arrive on Tuesday, along with reports from a pair of Chinese companies,
Aluminum Corp. of China
China Petroleum and Chemical
Wednesday will highlight retailers including
. Also on Wednesday, restaurant chain
will report its fiscal third-quarter results. Analysts expect the company to earn 39 cents, down from 48 cents a year ago.
Open-source software provider
is due to report earnings on Thursday.