U.S. stocks traded modestly lower Monday at the start of a week that will see the unofficial start of first-quarter earnings, headlined by some of the nation's largest banks, including JPMorgan Chase & Co. $(JPM)$ and Goldman Sachs Group$(GS)$.
Market participants were also weighing comments from Federal Reserve Chairman Jerome Powell, who spoke during a "60 Minutes" interview that aired on Sunday.
How are stock benchmarks performing?
On Friday , the S&P 500 booked a 2.7% weekly gain, the Dow rose 2%, and the Nasdaq Composite logged a 3.1% weekly rise. The S&P 500 and the Dow booked their third straight weekly gain, while the Nasdaq has climbed for two weeks in a row.
What's driving the market?
On Sunday, Powell said that the economy is going to start growing strongly in the second half of the year, but emphasized that that rebound shouldn't lead anyone to believe that the central bank would dial up interest rates in 2021.
"I think it's unlikely that we would raise rates anything like this year," Powell said during the "60 minutes" interview which was taped at the Fed's headquarters on Wednesday and aired Sunday evening.
The Fed chief said the economy "seems to be at an inflection point," with strong growth coming "right now" and the weakness caused by the coronavirus pandemic in the rearview mirror.
Powell's comments come as Wall Street is positioning for the start of first-quarter corporate results, which could offer further clues about whether one of the market's biggest fears is coming to fruition: a too-hot economy and surge in inflation that compels policy makers to substantially raise rates and dial back accommodative policies sooner than expected.
So far, Fed officials have said they expect a rise in inflation to be transitory and have repeatedly stated that they would be focused on ensuring that the labor market makes a full recovery before considering easing policy.
As earnings season kicks off, "I'm waiting to see how the market reacts," said Keith Lerner, chief market strategist for Truist Advisory Services. "A lot has been priced in and the market is looking for earnings to confirm that that's the correct move. The hurdle rate for positive surprises has moved up."
Lerner thinks the Fed will remain "supportive" and even if bond yields rise, the market should absorb the next leg higher as long as it isn't too steep.
"We've had a very gradual, but steady, low-volatility move to new highs," Lerner said in an interview. "I still think the primary market trend is higher, but as we head into earnings, I suspect we start trading a little more rangebound. When the primary trend is higher, you don't want to worry about the hiccups."
Some strategists fear, however, that stock valuations remain elevated despite uncertainties that include inflation and the tax regime.
Stocks mostly ended at records last week and the Nasdaq Composite, after falling into correction in March --defined as a drop of at least 10% from a recent peak--stands less than 2% from its Feb. 12 all-time closing high. Gains for equity benchmarks have come despite concerns about out-of-control inflation and the possibility that President Joe Biden will raise the corporate tax rate to 28% from 21% to help fund his $2.4 trillion infrastructure proposal.
"The investment community is too upbeat in our opinion, not showing any concern for plausible tax increases being proposed by the Biden administration," wrote Citigroup research analysts, Tobias Levkovich, Lorraine Schmitt and Jennifer Stahmer, in a research note dated April 7.
"Indeed, all developments are perceived as positive news. Yet, such one-sided views are not usually a good starting point," the Citi researchers wrote.
Meanwhile, Germany was preparing new COVID-inspired legislation which would enable the eurozone's largest economy to impose national restrictions without regional government approval. England, meanwhile, reopened pubs for outdoor drinking, and hairdressers.