The Week Ahead

Equities enter this week on shaky ground following late last week selling. The SPX is now 9% off its all time highs and about 1.5% off the recent March 14th lows that marked an official correction. This week is expected to be full of market moving headlines. More on the upcoming week in a bit, but first some stories from this weekend you may have missed:

Over the Weekend:

• Tariffs Repel Foreign Investment (WSJ Opinion)

  • Countries with trade surpluses tend to buy U.S. government and corporate bonds. If countries respond to Mr. Trump’s tariffs by reducing their investments, it would decrease demand for U.S. debt securities and increase the interest rate that must be paid upon their issuance. This could slow the U.S. economy.

• This Technical Accounting Debate Could Rattle Debt Markets. Here’s Why. (Barron’s)

  • Republicans want to extend the 2017 Tax Cuts & Jobs Act and are considering a different accounting approach to lower its reported cost, a move that could rattle investors worried about the country’s growing fiscal deficit.

• Tariffs on Screws Are Already Hitting Manufacturers (WSJ)

  • President Trump’s tariffs implemented this month on steel and aluminum imports have scrambled the supply chains of companies that make everything from car parts to appliances and football helmets to lawn mowers.

• Trump won’t rule out seeking a third term in the White House, tells NBC News ‘there are methods’ for doing so (CNBC)

  • NBC News asked about a possible scenario in which Vice President JD Vance would run for office and then pass the role to Trump. Trump responded that “that’s one” method. “But there are others too,” Trump added.

• China to Inject $69 Billion Into Four Big Banks in Capital Boost (Bloomberg)

  • The banks will issue the new shares at a premium between 8.8% and 21.5% above their Friday closing levels in Shanghai in order to replenish core tier-1 capital. The announcements follow Chinese authorities’ pledge in early March to issue 500 billion yuan in special sovereign bonds to replenish capital at the nation’s biggest state-owned banks.

We entered last week with some of the lowest market volatility expectations since February, but as we highlighted, that was unlikely to last. We enter this week a little differently. The VIX closed last week near 22, up from 17 earlier in the week. That has expanded expected moves for this week, with Wednesday through Friday seeing particularly high implied vols, anticipating large moves on the tariff deadlines and Friday morning’s Jobs Number.

This week’s SPX/SPY expected move of 2.5% is up from last week’s 1.8%. Also, note that QQQ and IWM are pricing 3% moves for the week. Here are the potential ranges as priced by options based on Friday’s close:

This Week’s Expected Moves:

• SPX/SPY: 2.5% (5425-5725)

  • QQQ: 3.0%

  • IWM: 3.0%

  • TLT: 1.5%

  • USO: 2.5%

All of the above expected moves (with the exception of Oil) are significantly wider than last week. Also note that the SPX range to the downside would represent a technically significant break below recent lows.

The economic calendar is headlined by the Jobs Number on Friday but we will also see a flurry of headlines into (and out of) the tariff deadline on Wednesday. Monday also happens to be the end of the month/quarter where we could see some odd moves throughout the day, particularly in individual tickers:

Economic Calendar: 

• Monday

  • 9:45am - Chicago Purchasing Managers' Index

  • End of Quarter (potential rebalancing/marking)

• Tuesday

  • 10am - ISM Manufacturing PMI

  • 10am - JOLTS Job Openings

• Wednesday: 

  • Tariff Deadline (ongoing)

  • 8:15am - ADP Employment

  • 10am - Factory Orders

• Thursday:

  • 7:30am - Challenger Job Cuts

  • 8:30am - Initial Jobless Claims

  • 9:45am - S&P Global Composite PMI

  • 10am - ISM Services PMI

• Friday:

  • 8:30am - NFP Jobs Number

We’re down the stems and seeds portion of earnings season, but we start right back up the second week of April (JPM reports Friday April 11th). For this week:

Earnings (with expected moves):

• Monday

  • After hours PVH 12%

• Wednesday

  • Premarket: BB 12%

  • After hours: RH 15%

  Thursday

  • Premarket: CAG 4.5%

Traders are likely correct that this week will be a volatile one. From a market structure standpoint things are really tricky for equities below this level as volatility would be likely to see a large pop, adding even more to the day to day moves. And as always in high volatility backdrops, a sharp counter-trend rally is equally possible.

One thing to be aware of is there has been somewhat of a sentiment shift around the April 2nd deadline. Traders had become a bit complacent over the past two weeks, pricing the upcoming deadline as the potential end of the tariff headlines. Things have changed a bit in the past few sessions, where volatility is priced well after April 2nd. Perhaps some lessons learned from March’s “deadline”.

We’ll have continuing coverage of all the market moves and headlines, your questions answered, and trade ideas all week. As always, stay tuned!

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