The most important event for next week which will overshadow everything else will be the April 27th FOMC announcement and Fed chairman Ben Bernanke’s first post FOMC press conference. The Fed chairman plans to do this 4 times per year in an effort to boost fed transparency. Bernanke might give us some indication of what the fed plans to do post QE2. The key thing to observe will be what he tells us about maturing securities. When bonds on the fed’s balance sheet mature and the fed gets paid back, the feds balance sheet contracts. The expectations are that they will end extra purchases but keep re-investing proceeds from maturing securities to keep the balance sheet stable. This is the only area of possible surprise I can anticipate. In case they decide to just let maturing securities roll off, that would mean we would have a mild contractionary monetary policy post QE2 and I think the market might react negatively. The other area of interest to me would be his take on inflation. In the past he has stated that he thinks the current increase in commodity price inflation is temporary and as long as there is slack in the labor market inflation will not be a problem. In case he shows some worry about inflation, that should be good for the dollar and probably bad for the stock market
Earnings will continue to roll in and will probably come in pretty good. Here is an excerpt from Barron’s weekly The Trader article that show so far earnings are coming in pretty solid.
“Of the 137 companies in the Standard & Poor’s 500 that have reported first-quarter results, three out of four have beaten profit forecasts—better than the 17-year average near 62%—while just 14% have missed their marks, says Thomson Reuters. Profits are coming in 8% higher than analysts expected—well above the longer-term average outperformance of 2%, though less than the 9% margin by which they were trumping targets the past four quarters. An impressive 69% also beat revenue expectations, with sales coming in 2% better than forecast.“