Hurdles This Week

The stock market has to deal with some hurdles this week, but they may not derail the market's recovery.  /1/ Important US economic data are expected to post sharp declines.  But, they could be viewed as temporary in light of the hope for a recovery.  Also, they might not come in as weak as expected by consensus.  /2/ Corporate earnings will be coming out.  They may not be all weak, but guidance should be either lowered or left uncertain.

The more significant problems for the stock market could come later.  There may be disappointment if the economy's re-opening is delayed beyond May or if the economic recovery turns out to be weaker than expected.  

Most of this week's US economic data are seen weakening sharply, but there is greater-than-typical uncertainty about the magnitude of the consensus estimates.  /1/ Consensus looks for -7.0% m/m Total and -3.0% Ex Auto Retail Sales for March.  The shutdown of restaurants and stores will impact this number.  But, there will be offsets from the hoarding of food and other necessities as well as from internet shopping.   There is not much hard evidence about these offsets, so a lot of uncertainty surrounds the consensus estimate.  /2/ Consensus sees -4.2% m/m March Industrial Production.  Most of the drop comes from Manufacturing Output, which is projected to plunge 3.9%.  However, Total Hours Worked in Manufacturing fell only 0.9% m/m in March.  So, the consensus estimate would seem to be more of a guess as to how much of the work stoppage after the Payroll Survey Week pushed down output.  If so, it suggests there is more than the typical uncertainty surrounding the estimate.

The Unemployment Claims data are the most up-to-date measure of economic activity.  Consensus looks for a decline in Initial to a still-extraordinarily high 4.6 Mn from the prior week's 6.6 Mn.  But, the downward w/w direction may be more important for the market.  Moreover, these data have to be viewed a little cautiously.  This is because the latest legislation expanded benefits to workers not normally covered.  Also, the $600 payment to low-income unemployed people will be distributed through this system, which could pull in many people who might not otherwise apply.
  
Hope of a near-term return to normalcy in the economy should still be in the background.  Talk of an eventual re-opening of the economy is continuing and progress appears to be happening in the development of drugs, testing and vaccines.  Officials are talking about the possibility of re-opening business, although are careful to say that they need to see a greater abatement of the virus and then implement a gradual re-start with a number of safeguards.  Dr Fauci does not rule out a Mid-May start to re-opening.  Trump's "opening our country" council meeting on Tuesday will likely produce cautiously positive headlines.