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Stronger financial information may drive shares that may see rallies within the week forward

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The Wall Street Bull can be seen in New York City during the Pass of the Snowstorm on January 31, 2021.

Eduardo MunozAlvarez | VIEW press | Corbis News | Getty Images

A decline in new infections with Covid, as well as improving economic data and hopes for incentives, could boost stocks, which thrive in a resurgent economy for the coming week.

Over the past week, expectations for a strong economic recovery helped boost interest rates.

While the broader stock market was troubled, sectors that are rebounding – financials, airlines and industrials – led the way. This is known as the reflation trade.

These stocks rose 2% at the expense of growth and technology. Strategists expect the reflation trade to continue as signs suggest the economy may make a sharp comeback.

The S&P 500 fell 0.7% weekly to 3,906, while the Dow was up a tiny 0.1% at 31,494. The Nasdaq fell 1.57% to 13,874 over the course of the week, on the back of the technology decline. For example, Apple gave up 4% a week.

The big event next week is the testimony of Federal Reserve Chairman Jerome Powell, who gives his semi-annual testimony on the economy on Tuesday before the Senate Banking Committee and Wednesday before the House Financial Services Committee.

He is expected to speak about the rise in interest rates as well as fears that inflation may ease.

"He must acknowledge that the data is improving and the virus situation is improving significantly," said Mark Cabana, head of US interest rate strategy at Bank of America. "It's going to be hard for him to sound as reserved as he was."

However, Powell is expected to continue to stress that the Fed will keep rates low for a long time and maintain its simple policies to help the economy.

Improve forecasts

Last week's economists upgraded first-quarter GDP forecasts, partly due to an unexpectedly sharp 5.3% increase in retail sales in January.

Goldman increased first quarter growth to 6% and Morgan Stanley said first quarter growth was 7.5%. Economists linked the surprise surge in retail sales to stimulus checks sent to individuals as part of the last $ 900 billion stimulus program approved by Congress in late December.

The Biden government has proposed another $ 1.9 trillion Covid aid package. That could come before the House of Representatives in the coming week.

"[Powells] will stick to the script. The script is that lawmakers must continue to provide support to the economy. It will support government efforts to get a big package through," said Mark Zandi, chief economist at Moody & # 39; s analytics.

Key dates during the week

The result is still important. There are more than 60 companies including Home Depot, Macy's, and TJX.

The top economic reports falling next week include durable goods on Thursday and personal income and expense data on Friday

Friday's report includes the personal consumption expenditure price index that the Fed monitors. The market is looking for signs of rising inflation.

"I think the boom will start sooner than most people think," said Ed Keon, QMA's chief investment strategist.

He said the stronger economy will help boost government bond yields, with the 10-year high reaching a year-high of 1.36% on Friday. Keon said the introduction of the vaccine improves the outlook, as does the slowed spread of the virus.

"I think people expected a boom in the second half, but I think the second quarter will be very strong as people change their behavior," he said.

"The caution when it comes to savings, not going out, will go away sooner than we think," said Keon. "Right now, you could see GDP of 10% in Q2 or Q3. That's also because we're likely to get a big stimulus package."

He said investors are underestimating the spike in economic activity, which should start in March and pick up pace in the second and third quarters as more people return to eating out and engaging in other activities.

"I think the world will look very different from the last 12 months. We are still optimistic. We are still overweight," said Keon.

He said a flood of money could hit the economy.

"The size of the US economy was about $ 21 trillion last year," added Keon. "Households now have about $ 1.5 trillion in excess savings and the stimulus package is likely to be near $ 1.2, 1.6 trillion."

He said the service sector should begin to see an advantage that has lifted the manufacturing side of the economy. "You are going to experience an incredible boom."

Calendar for the week ahead

Monday

Merits: Dish Network, Royal Caribbean, Marathon Oil, Ingersoll-Rand, Occidental Petroleum, Transocean, Zoominfo, ONEOK, HSBC

10:00 am leading indicators for the economy

Tuesday

Merits: Home Depot, Macys, Intuit, Thomson Reuters, Square, Toll Brothers, Jazz Pharmaceuticals, McAfee, Medtronic, Pioneer Natural Resources, Bank of Montreal

9:00 a.m. FHFA real estate prices

9:00 am S&P / Case-Shiller real estate prices

10:00 am Fed Chairman Jerome Powell Senate Banking Committee semi-annual economic report

Wednesday

Merits: Lowe & # 39; s, NVIDIA, Viacom, Public Warehousing, Booking Holdings, TJX, Brookdale, Royal Bank of Canada, Apache, Petrobras, Pure Storage, L-Brands, Casper Sleep

7:00 am mortgage applications

10:00 am Sale of new houses

10:00 am Fed Chairman Powell's House Financial Services Committee semi-annual economic testimony

Thursday

Merits: Salesforce.com, Norwegian Cruise Lines, Etsy, Best Buy, HP, Shake Shack, Beyond Meat, Anheuser-Busch Inbev, Dell Technologies, Virgin Galactic, American Tower, Cleveland Cliffs, Airbnb, Carvana, Door Dash

8:30 am Raphael Bostic, Atlanta Fed President

8:30 a.m. unemployment claims

8:30 a.m. consumer goods

8:30 a.m. Q4 BIP second reading

10:00 a.m. Pending home sales

10:00 am Advanced Economic Indicators

10:00 am James Bullard, St. Louis Fed President

3:00 p.m. John Williams, President of the New York Fed

Friday

Merits: Fluor, Cinemark, Draft Kings, Foot Locker, AMC Networks

8:30 am Personal Income and Expenses

8:30 am Advanced trading

9:45 am Chicago PMI

10:00 am consumer mood

Saturday

Merits: Berkshire Hathaway

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Katherine Clark