Bloomberg: Here’s what can test sentiment and drive price action in coming months:
• 2Q Earnings. Trading 1Q earnings proved to be a fools’ errand and the extent of destruction will be evident when guidance begins to roll out in July. EPS estimates for a snapback are still baked in for next year
• 2Q GDP. Macro data may matter again as it will guide further Fed action. Forward-looking markets have faded data with sights on the recovery yet may need more assurance that the taps will be turned up on evidence of the magnitude of destruction. The Fed has signaled it will be on pause until later in the year to assess initiatives
• Job destruction. Stimulus can fend off delinquencies but the risk of permanent job loss remains. With expanded benefits set to expire in July and the Fed’s Rosengren warning of a much more severe outcome in labor markets, elevated unemployment may curb enthusiasm
• Mortality rates. Clarity on whether gradual June re-openings prove successful in mitigating a second wave of infections will emerge with focus on death rates amid testing constraints. Renewed restrictions are not markets’ base case
• Business bankruptcies. Equities have discounted a potential wave thus far, but this summer may bring about a critical mass of business closures that could finally dent optimism
To be sure, the breadth of the rally is limited, which could curtail pullbacks with material downside surprises needed -- the U.S-China tensions remain a wildcard. And sentiment-driven markets point to the rally having more steam ahead. But the Fed and its powerful put may be tested just as the summer heats up.
• 2Q Earnings. Trading 1Q earnings proved to be a fools’ errand and the extent of destruction will be evident when guidance begins to roll out in July. EPS estimates for a snapback are still baked in for next year
• 2Q GDP. Macro data may matter again as it will guide further Fed action. Forward-looking markets have faded data with sights on the recovery yet may need more assurance that the taps will be turned up on evidence of the magnitude of destruction. The Fed has signaled it will be on pause until later in the year to assess initiatives
• Job destruction. Stimulus can fend off delinquencies but the risk of permanent job loss remains. With expanded benefits set to expire in July and the Fed’s Rosengren warning of a much more severe outcome in labor markets, elevated unemployment may curb enthusiasm
• Mortality rates. Clarity on whether gradual June re-openings prove successful in mitigating a second wave of infections will emerge with focus on death rates amid testing constraints. Renewed restrictions are not markets’ base case
• Business bankruptcies. Equities have discounted a potential wave thus far, but this summer may bring about a critical mass of business closures that could finally dent optimism
To be sure, the breadth of the rally is limited, which could curtail pullbacks with material downside surprises needed -- the U.S-China tensions remain a wildcard. And sentiment-driven markets point to the rally having more steam ahead. But the Fed and its powerful put may be tested just as the summer heats up.