Stocks could stay choppy as fears about the Fed overshadow earnings news

Earnings season is here and it may distract investors from other issues, but it’s not likely to be the big driver of the overall market in the week ahead.

Investors instead, will keep an eye on the things that have been worrying the market — interest rates, inflation and war in Ukraine — and they will be sifting through company commentaries to see how these things are impacting the bottom line.

A highlight of the week should be Thursday’s International Monetary Fund panel, which includes Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde, among others. The panel is a debate on the global economy and is to be moderated by CNBC’s Sara Eisen.

There are just a few economic reports, with several focused on housing. The National Association of Home Builders’ survey is released Monday. Housing starts are reported Tuesday, and existing home sales are Wednesday. The Philadelphia Fed manufacturing survey is released Thursday, and manufacturing and services PMI surveys are issued Friday.

“I think the market is so focused on the Fed and inflation and everything else that stocks will have a very weak response to earnings,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse. “I think the market is going to trade up, but the market is not going to give companies full credit.”

Seven Dow blue chips report earnings next week, including IBM, Procter and Gamble, Travelers, Dow Inc, Johnson and Johnson, American Express and Verizon. Netflix reports Tuesday and Tesla reports Wednesday, both after the bell. Snap reports Thursday.

Bank earnings will continue to roll in with Bank of America and Bank of New York Mellon both reporting Monday. Transportation companies will also release their numbers, including trucking firms Knight-Swift Transportation and J.B. Hunt Transport. United Airlines, American Airlines and Alaska Air are also on the calendar as are railroads CSX and Union Pacific.

“Guidance is going to continue to be poor. Companies are going to whine and complain about cost pressures, even when they’re going to report improved results,” Golub said. “I think that’s going to make it a little sloppier in terms of the price action.”

Strategists expect there could be more misses and fewer beats in the first quarter earnings season. Earnings are expected to increase by 6.3% for the first quarter, based on actual reports and estimates, according to I/B/E/S data from Refinitiv.

“I think you’re going to see a lot more differentiation and divergences,” said Keith Lerner, co-chief investment officer and chief market strategist at Truist. “I think you’re going to see companies that have managed well, and others that have profit pressures. You’re going to see more extremes, relative to broad-based strength over the past two years.”

Strategists expect the market to remain volatile, as the Federal Reserve prepares to raise interest rates again in early May and continue to tighten policy this year.

“Our broader view is we’re going to continue to be in this big, broader choppy range,” Lerner said. “The way I see it for the next couple of months, is no new highs, and no new lows.”

The S&P 500 was down about 1.5% for the week, as of Thursday afternoon.

Rising bond yields were weighing on the stock market this past week, and the 10-year Treasury yield made a rapid move up to a high of 2.83% Wednesday from 2.70% on the previous Friday. It was at 2.82% Thursday.

The big focus for the bond market will be Powell’s comments Thursday.

“I think Powell’s going to be hawkish. He’s going to emphasize that they’re going to hike, hike a bunch, do the balance sheet and get on with it,” said Michael Schumacher, director rates strategy at Wells Fargo.

Neutral on stocks

Lerner said uncertainty about the Fed is one reason he downgraded the stock market from attractive to neutral this past week. He also did it based on rising yields and the defensive positioning he sees in the stock market.

“Given the rise in yields, the comparative valuations are now in a place where stocks have historically had an average outperformance [versus bonds] of about 3.5%, rather than the double digits when yields are lower,” he said.

 Lerner said defensive sectors like consumer staples, health care, energy and REITS have been outperforming.

“When you look at the more economically sensitive areas of the market – financials, transportation and home builders, they’re all lagging. That’s telling us the market is concerned about slower growth,” he said. “Our view is recession risk is still relatively low over the next year. However, this is telling you we’re more likely to have a slowdown in the economy. Part of that is the Fed and also the sticky inflation numbers.”

Week ahead calendar

Monday 

Earnings: Bank of America, JB Hunt, Charles Schwab, Synchrony Financial, Bank of NY Mellon, FNB

8:30 a.m. Business leaders survey

10:00 a.m. NAHB home builders survey 

4:00 p.m. St. Louis Fed President James Bullard

Tuesday

Earnings: IBM, Johnson and Johnson, Netflix, Travelers, Hasbro, Lockheed Martin, Interactive Brokers, Citizens Financial, ManpowerGroup, Truist Financial, Prologis

8:30 a.m. Housing starts 

12:05 p.m. Chicago Fed President Charles Evans

Wednesday

Earnings: Procter and Gamble, Tesla, United Airlines, Nasdaq, CSX, Abbott Labs, Alcoa, Anthem, Baker Hughes, Comerica, Knight-Swift Transportation, GATX, Sleep Number, Tenet Healthcare, Alcoa, Equifax, Steel Dynamics, Lam Research, Equifax

10:00 a.m. Existing home sales

10:30 a.m. San Francisco Fed President Mary Daly

11:30 a.m. Chicago Fed’s Evans

2:00 p.m. Beige book 

Thursday 

Earnings: AT&T, Dow, American Airlines, Blackstone, Union Pacific, Snap, Intuitive Surgical, PPG Industries, Keycorp, Danaher, Freeport McMoRan, Alaska Air, Pentair, Tractor Supply, Huntington Bancshares, Philip Morris Intl, Quest Diagnostics, Genuine Parts, Pentair

8:30 a.m. Initial claims

8:30 a.m. Philadelphia Fed manufacturing

1:00 p.m. Fed Chairman Jerome Powell and ECB President Christine Lagarde on IMF panel

Friday 

Earnings: American Express, Verizon, SAP, Regions Financial, Schlumberger, Newmont Goldcorp, Cleveland Cliffs, Kimberly-Clark, HCA Healthcare

9:45 a.m. Manufacturing PMI

9:45 a.m. Services PMI