“Stocks are likely to take their cue from the bond market in the coming week, as traders worry low yields are a warning that the economy is not springing back.
Even with the choppy trading of the past week, the Nasdaq eked out a small gain while the Dow, S&P 500 and Russell 2000 were all lower. The 10-yearyield, a lightning rod for stocks, rose to 2.519 percent after better-than-expected housing starts Friday.
The week ahead is light on economic data, but much of what is available will have to do with housing—an area of concern. Existing home sales are Thursday and new home sales are reported Friday. There is also the release of minutes from the last Federal Reserve meeting on Wednesday afternoon, and about a half dozen Fed speakers will be discussing the economy throughout the week.
“The key indicator will be the yield on the 10-year,” said Art Cashin, director of floor operations at UBS. “Unless the saloon full of Fed speakers says something to move the market, you’ve got to watch the 10-year.”
Earnings from home improvement retailers Home Depot and Lowe’s are also expected, as are reports from Campbell Soup and Hewlett-Packard.
The 10-year yield, along with the entire Treasury curve, has been moving lower, reaching 2.47 percent Thursday, the lowest level since July. Some of the decline was due to short covering by investors. Yields, which move lower as bond prices rise, were also moving in lockstep with a global rate move, triggered by expectations the European Central Bank will announce a stimulus plan in June.
Cashin said a big concern for the market is deflation….”
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