Top 5 Things To Watch In The Stock Market This Week

March 22, 2021 8:25 AM EDT

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U.S. Stock Futures Mixed Ahead Of Inflation Data

U.S. stock futures were mixed on Monday morning as Wall Street looked to bounce back from an unpleasant week. The bulls seem to be edging out the bears as we start the week. This came as bond yields appear to be taking a slight breather after jumping again last week. Nevertheless, pressure remains on high flying growth sectors like technology. On Sunday, futures for the price of 10-year Treasury notes rose in anticipation both of a strong economic recovery and of firming inflation.

On Friday, the U.S. Bureau of Economic Analysis will release its report on February personal consumption expenditures (PCE) or the change in the value of goods and services purchased by the U.S. consumer. Consensus estimates by economists point to an increase in headline PCE by just 0.3% month-over-month to match January's tepid rate. However, with trillions of stimulus aids going into the economy, many investors have been looking for signs of rapid inflation. That said, if inflation indeed rises rapidly, the Fed might set a higher interest rate for borrowing for companies and consumers. This will in effect slow down the growth of some tech stocks that rely heavily on borrowing to finance their expansions.

"Clearly, the market is skeptical that the Fed will be able to keep interest rates at current levels for the next three years," Diana Mousina, senior economist in the multi-asset group at AMP Capital Investors Ltd., said in a note. "We think that nominal bond yields can still shoot higher in the short-term towards 2% and above on inflation concerns. Markets are likely to worry that this move is permanent, rather than temporary."

From the stock futures, investors could expect another uneventful day. Or could they? The S&P 500 and Nasdaq futures are trading in the positive territory, rising 0.25% and 0.87% respectively as of 7:41 a.m. ET. On the other hand, Dow futures are marginally lower, falling 0.02%.

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Canadian Pacific Railway (CP) To Acquire Kansas City Southern (KSU)

Canadian Pacific Railway (NYSE: CP) is acquiring Kansas City Southern (NYSE: KSU) in a $25 billion cash and stock deal. This will create the first rail network spanning the United States, Mexico, and Canada. It could stand to benefit from a pick-up in trade. Investors will probably bid up all the railroad stocks in Monday trading.

It would be the largest ever combination of North American railways by transaction value. In large part, the deal is a bet on an escalation in North American trade, nearly a year after the new United States-Mexico-Canada Agreement, or USMCA, took effect, replacing the 26-year-old North American Free Trade Agreement, or Nafta.

"Think about what we've gone through, think about the importance in North America of near-shoring that is occurring. This network uniquely provides a supply chain that allows our customers and our partners to actually benefit from that and leverage that opportunity," Canadian Pacific Chief Executive Keith Creel told Reuters.

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Reopening Stocks On Focus

The 10-year Treasury yield may have hit a pre-pandemic high of 1.75% and sparked concerns of another round of stock market sell-off. But Fundstrat's Tom Lee described the recent weakness as nothing more than "textbook chop". He believes that the stock market could recover its losses and move higher this week. That's amid increasing vaccine penetration and improving household confidence.

In Lee's own words, "Epicenter and Cyclicals outperformed in March and today the weakness was far more acute in Technology and Communications Services. These are the crowded growth trades. In other words, this is not a change in market character. This is simply the acceleration of the rotation out of crowded Growth into Epicenter. It is going to be sloppy."

His confidence among top reopening stocks is not unwarranted. Look at Tripadvisor (NASDAQ: TRIP) and Disney (NYSE: DIS) for instance. Both companies would stand to benefit from the eventual tourism boom when borders are open again. Firstly, TRIP stock has been on a tear, gaining by over 270% over the past year. This is despite operations taking a beating from the current pandemic. At the same time, DIS stock continues soaring towards new heights thanks to its current streaming service. Coupled with its core theme park services gradually reopening, could now be the time to bet on reopening stocks?

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GameStop Earnings

GameStop (NYSE: GME), the poster child for the latest surge in retail investor interest in the stock market today, will be reporting fourth-quarter results Tuesday afternoon. Ask any Wall Street analysts, they would most probably tell you that GME stock has not been trading according to its fundamentals. On the flip side, there are also a group of retail investors who purported that GME stock was a long-term investment and recovery play after a weak 2020. It is unclear if the fourth-quarter results are likely to suggest any significant changes in terms of GameStop's business performance. But investors will certainly be looking at the guidance from the management team.

With a market capitalization hovering around $14 billion as of Friday, it has quickly vaulted to become one of the biggest companies in the small-cap Russell 2000 index. Of course, it is easy to dismiss GME stock as the result of speculation among retail investors. But the company is not resting on its laurels to prove that it is serious about making a comeback. The company announced in early February that it had brought on Matt Frances. The former engineering leader from Amazon's (NASDAQ: AMZN) Amazon Web Services joined GameStop as its chief technology officer. This news contributed to optimism among some investors.

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Earnings Winding Down

While the fourth-quarter corporate earnings season has slowed down, a small number of notable companies are still set to report results this week. These include Adobe (NASDAQ: ADBE), General Mills (NYSE: GIS), and Restoration Hardware (NYSE: RH). As such, whether you are looking for the best epicenter stocks to buy, looking at the inflation data, or following earnings reports, these should be enough to keep you busy this week.

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