By Noreen Burke
Investing.com -- Market volatility looks set to remain elevated in the coming week as rotation trades to continue to play out amid the vaccine rollout and reopening of the economy. Wild swings in Bitcoin, which soured risk appetite last week, could continue to create a drag on the broader market, at least for now. On the data front, investors will be watching reports for April on personal spending, durable goods and home sales to gauge the strength of the economy as the second quarter got underway. Earnings season is winding down, but there are still some retailers left to report. There will also be a handful of speeches by Federal Reserve policymakers, including Governor Lael Brainard, who is set to speak at a virtual cryptocurrency conference. Here is what you need to know to start your week.
- Market rotation
With a few days left in the month, the tech heavy Nasdaq Composite and the S&P 500 are down month to date for May, losing 3.5% and 0.6% respectively. In contrast, the Dow Jones Industrial Average has risen around 1% so far this month as inflation concerns loom over growth names.
Investors have been spooked by concerns about the future path of Fed policy in the face of rising inflationary risks. Last week’s Fed minutes suggested some policymakers were ready to talk about reducing stimulus by tapering bond purchases.
Analysts expect the rotation out of growth and into value to continue as the economic recovery takes greater hold.
"Investors have to change their mindset and understand that tech is going to be a longer trade now. They're unlikely to see that 20% pop in Apple in the next couple of months," said Sylvia Jablonski, chief investment officer at Defiance ETFs.
- Bitcoin whipsawed
The world’s largest cryptocurrency extended losses on Friday after China announced it will crack down on Bitcoin mining and trading activities. Earlier in the week Chinese industry bodies tightened a ban on banks and payment companies providing crypto-related services.
Separately, the U.S. Treasury Department on Thursday called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service and the Federal Reserve flagged the risks cryptocurrencies posed to financial stability.
Since hitting an all-time high just under $65,000 in mid-April, Bitcoin has fallen sharply, but it has regained some ground after plunging to almost $30,000 last Wednesday.
Leveraged positions in bitcoin and ether futures fell sharply last week, said Vanda Research, which tracks retail trades. This indicates that some retail traders probably have folded their tents."(The) crypto bubble has started to unravel and data from different exchanges suggest that retail investors are capitulating," Vanda (NASDAQ:VNDA) researchers said.
- Earnings
Earnings season is continuing to wind down but there are still some retailers left to report, most notably Best Buy (NYSE:BBY), Costco (NASDAQ:COST), and Nordstrom (NYSE:JWN).
Other companies reporting earnings include NVIDIA (NASDAQ:NVDA), Salesforce.com (NYSE:CRM), and Dell Technologies (NYSE:DELL) along with Toll Brothers (NYSE:TOL), Cracker Barrel (NASDAQ:CBRL), Pershing Square (NYSE:SQ) Holdings, Urban Outfitters (NASDAQ:URBN), Abercrombie and Fitch (NYSE:ANF), Dick’s Sporting Goods (NYSE:DKS), American Eagle Outfitters (NYSE:AEO), Ulta Beauty (NASDAQ:ULTA), Autodesk (NASDAQ:ADSK), Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR) and Medtronic (NYSE:MDT).
- Economic data
The key data to watch in the coming week will be Friday’s personal income and spending data, which includes the personal consumption expenditures (PCE) index. The core PCE, excluding food and energy, is the Fed's preferred inflation measure for its 2% flexible average target. It was up 1.8% in the 12 months to March.
The data could test the Fed’s resolve to keep up asset purchases at their current pace in the face of an economic and inflation rebound.
Data on consumer confidence, house prices and new home sales are out on Tuesday, while figures for durable goods orders and initial jobless claims will be released Thursday.
- Fed speakers
Fed Governor Lael Brainard is to speak about digital currencies at the virtual Consensus by CoinDesk Conference on Monday; given recent volatility in the cryptocurrency market her comments will be closely watched.
Elsewhere Atlanta Fed President Raphael Bostic and Kansas City Fed President Esther George both speak on Monday.
Fed Vice Chairman Randal Quarles is due to testify on the Fed’s supervision and regulation of the financial system before the Senate Banking Committee on Tuesday.
--Reuters contributed to this report