Coronavirus and presidential election campaigns remain catalysts this week. Five economic indicators can also determine the fate of stocks.
The stock market continues to respond to the latest developments on the COVID-19 (coronavirus) epidemic. While the virus is largely contained in the United States with only 34 cases, new cases have skyrocketed in other countries such as South Korea, Italy and Iran.
On top of the COVID-19 outbreak, investors will likely keep an eye on the Democratic presidential primaries. With the win in Nevada, Bernie Sanders is now in the lead to become the Democratic nominee. Analysts believe that a Sanders presidency will ignite an economic recession.
While investors keep a close watch on news regarding the COVID-19 and the Democratic presidential primaries, there are five other economic indicators that could impact the U.S. stock market this week. We’ll look into consumer confidence, personal income and spending, new home sales, real GDP, and durable goods orders.
On Tuesday, the Conference Board will release its findings on U.S. consumer confidence for the month of February. Market participants are likely keen to know whether coronavirus and Democratic primaries are influencing the sentiments of Americans about the economy.
Sam Bullard, managing director and senior economist at Wells Fargo, is expecting coronavirus to have little to no effect on consumer confidence. More importantly, the economist believes that consumer confidence will continue to grow. In a weekly newsletter, he wrote:
We look for consumer confidence to improve for the fifth consecutive month in February, supported by a healthy labor market, low inflation/gasoline prices, and an elevated stock market.
On Wednesday, the housing sector will garner attention as new home sales are due for release. According to consensus estimates, 715,000 new houses were sold in January. However, Wells Fargo believes that number will be significantly higher at 722,000 new homes. Bullard believes that lower mortgage rates, higher mortgage applications and a strong labor market are key factors that drove a 4% increase in new homes sales in January.
On Thursday, reports on durable goods orders may dampen investors’ moods. After a 2.4% increase in December, analysts are expecting a 1.5% drop due to plunging defense orders and scarce Boeing orders. Bullard noted,
Boeing announced it had no new orders in January after just three new orders in December, when nondefense aircraft orders fell 75%.
Should durable goods orders plunge by more than 1.5%, it might trigger a selloff in stocks.
Also on Thursday, the U.S. Commerce Department will release revised projections of Q4 gross domestic product. Both consensus estimates and Wells Fargo agree that GDP will grow 2.1% for the quarter ending December. Estimates could be a little better considering that the U.S. and China agreed to a trade truce and Congress enacted a government spending measure.
On Friday, data on January’s personal income and spending will be released. Analysts predict a 0.3% increase on both personal income and spending. Bullard points to the healthy labor market as the catalyst for the gains in personal income. He noted,
The healthy labor market should lead to a 0.3% m/m gain in personal income, while personal spending should also rise 0.3% on the month. The gain in spending could have been bigger, though warmer-than-usual temperatures should weigh on utility spending, and in turn, services spending.
Overall, it appears that market participants should expect a good week. However, significant deviations could rock the stock market.
The above should not be considered trading advice from CCN.com.