3 things to watch in the stock market next week
Expect more market volatility as the conflict in Ukraine rages on. Upcoming data points will tell us more about the state of the economy, and rising oil prices could lift the already hot EV sector.
Stocks continued to suffer in the first half of this shortened week, as global tensions continued to mount.
Russia’s invasion of Ukraine came to fruition Thursday, the largest military attack on European soil since World War II. It sent markets reeling, with the S&P 500, Nasdaq Composite and Dow Jones Industrial Average all dropping to levels not seen in about nine months. But stocks rebounded to close out the week, showing just how volatile current market conditions are.
Bearish sentiment continues to dominate the mood of investors, though, with markets approaching bear market territory. Here are three things worth watching in the markets next week.
1. More volatility following Russia’s invasion of Ukraine
Investors should prepare for ongoing volatility as global tensions will likely continue to shape the markets for a while longer. Russia’s invasion of Ukraine Thursday sent markets tumbling early in the morning. They quickly rebounded, as investors assessed fresh sanctions on Russia, ending up for the day and continuing to show strength Friday. With it being unclear where the conflict is heading, this volatility could continue for the short term. Global-event driven markets can fall fast and rebound just as quickly.
The economic impact of the invasion and sanctions could also increase the chances of a lingering bear market. Investor sentiment has grown increasingly pessimistic over the last few months, as the Federal Reserve positions to take on inflation through a series of interest rate hikes, among other things. Whether the invasion causes the Fed to change course remains to be seen. Its next meeting isn’t until the third week in March.
2. The state of the economy
With new coronavirus cases and deaths declining, investors should look for signs that the US economy is still on the path toward recovery. Key economic data points are slated for release next week, including nonfarm payrolls and unemployment rates for February, Automatic Data Processing’s (ADP) national employment report and the US Census Bureau’s monthly construction spending report. Weekly initial and continuing unemployment claims are also scheduled. Investors should get a better idea of the health of the US economy.
- Tuesday, March 1. The monthly construction spending report will be released by the US Census Bureau, giving investors some insight into how the real estate market fared in January. In December, construction spending increased 0.2%, coming in lower than the 13.1% revised gain seen in November. This next report will show the revised December estimate, providing a more accurate picture of December’s construction spending. Year-over-year spending was up 9%.
- Wednesday, March 2. ADP will release its national employment report. This monthly report provides a snapshot of US nonfarm private sector employment. Private sector employment decreased by 301,000 jobs from December to January, according to its January report. In comparison, the private sector added 776,000 jobs in December. January was the first month in the last year that private sector employment dropped. The omicron variant was cited as the reason behind the step back.
- Thursday, March 3. The US Department of Labor will release its report detailing initial and existing unemployment claims for the previous week. Last week’s report showed 232,000 initial claims, a decrease of 17,000 from the previous week’s revised level.
- Friday, March 4. The US Bureau of Labor Statistics will release its nonfarm payrolls and unemployment rates for February. This report tracks the nation’s unemployment rate on a month-over-month and year-over-year basis. January’s report showed an addition of 467,000 nonfarm jobs, with the unemployment rate reaching 4%.
These data points will show just how much the economy is improving, and the market may move as investors look for clues as to how the Fed will react to the data along with the shock of Ukraine on global markets.
3. Earnings season continues; watch Lucid Motors and the hot EV sector
Shares of electric-vehicle (EV) makers climbed Thursday after getting a boost from concerns about skyrocketing oil prices connected to Russia’s recent invasion of Ukraine. Rising oil prices may speed the shift toward EVs — an already hot sector — potentially boosting EV sales and EV manufacturers’ stock prices.
Oil prices approached $100 a barrel on Thursday, the highest in more than seven years, after the Kremlin ordered an invasion of Ukraine. Crude oil prices were already on the rise, as demand outpaces supply, with the price per barrel now up nearly 52% since December.
Tesla (TSLA) released its fourth quarter and full year 2021 financial results in January and reported delivering 308,650 vehicles in the fourth quarter, up 27.86% from the third quarter. Daiwa Capital Markets analyst Daiwa analyst Jairam Nathan on Friday upgraded Tesla to Outperform, saying renewed supply chain concerns combined with higher oil prices raises Tesla’s competitive advantage over legacy internal combustion engines.
EV-startup Lucid Motors (LCID) will report fourth quarter and full year 2021 results on Monday, February 28. This will be Lucid’s second quarter as a publicly traded company, having gone public last July via a merger with blank-check company Churchill Capital Corp IV. Lucid began delivering vehicles in October, so we should get an idea Monday of the demand for its luxury EVs and its success in producing them.. The company expects to deliver 20,000 Air sedans in 2022 and 90,000 vehicles in 2023. Watch for similar analyst outlooks following its earnings release.
The company has already hit a snag in its rollout.
Lucid said on Tuesday that it would recall more than 200 of its Lucid Air vehicles due to a possible safety issue. The company said there was a chance that the front strut damper was assembled improperly by its supplier. This is a minor issue, as it concerns one of Lucid’s suppliers. If it were a battery or mechanical issue, it would be a different story.
Still, shares of Lucid slipped 4% Tuesday following the announcement. At the time of publication, Matt Miczulski owned shares of TSLA and LCID.
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