That was a lot of work to go nowhere. 
Stocks finished slightly higher last week, breaking a three-week trend of down weeks, but it wasn't without some big swings as Federal Reserve commentary and a final trickle of US corporate earnings gave markets plenty to react to. 
The big story last week was the return of "Fedspeak" as a market-moving catalyst. 
Meanwhile the retail sector continued to reveal poor results in the first quarter, though Walmart investors rewarded the company handsomely for a better-than-expected first quarter result that sent shares up by about 10% on Thursday.
This week's earnings calendar slows down a bit and the economic calendar remains modest, with readings on the housing and manufacturing sectors dominating before the second estimate of first quarter US GDP growth comes in on Friday.

Top Stories

  • The Fed came roaring back to life this week. After what seemed like months of markets knowing what the Federal Reserve was going to do next — short answer: nothing — a number of Fed officials this week signaled that more aggressive moves to raise interest rates could be coming. And soon. The action started on Tuesday with commentary from Atlanta Fed president Dennis Lockhart and San Francisco Fed chief John Williams, who suggested two or three rates hikes might be appropriate in a conversation with Politico. Then came Wednesday's Fed minutes, which suggested a progressing-as-expected economy might be enough to push the Fed towards raising interest rates in June. On Thursday we heard from Richmond Fed president Jeffrey Lacker and New York Fed president Bill Dudley, both of whom suggested markets are under-appreciating the likelihood that the Federal Reserve moves more aggressively on raising interest rates this year.

    In an interview on Bloomberg Radio Thursday morning, Lacker said he supported an interest rate hike at the Fed's April meeting and thinks the case for raising interest rates in June would be "very strong." Lacker is not a voter on the Federal Open Market Committee (FOMC), the committee that votes and determines actual policy decisions. Lacker added that he thinks markets took "the wrong signal from us pausing in March and April" as a sign additional rate hikes in 2016 were off the table. He added that he's "comfortable" with four rate hikes this year. Markets are expecting one.

    Dudley also emphasized that June is a "live meeting," something Fed chair Janet Yellen has stressed in recent communications though markets by and large discount this idea. Dudley added that if the economy follows his forecast then an additional rate hike in June or July — the Fed meets in both months — "is a reasonable expectation." Dudley is an FOMC voter. Many in markets had become are quick to dismiss jawboning from Fed officials as merely that, but the recent ramp-up in hawkish communication from the Fed is clearly in reaction to a market that had, in the Fed's mind, become too complacentwith respect to the Fed's stated intentions.  And as Akin Oyedele wrote on Saturday, the Fed risks getting stuck in a perpetual cycle of reacting to the market's reaction to the Fed. Perhaps a June rate hike would snap us out of the "doom loop" so elegantly outline by Bank of America. Screen Shot 2016 05 20 at 2.55.47 PMBank of America Merrill Lynch

Economic Calendar

  • Markit flash manufacturing PMI (Mon.): The preliminary reading on US manufacturing activity in May is set to cross the tape at 9:45 a.m. ET on Monday with Markit's flash PMI expected to hit 51.0. This would be an improvement from the final reading of 50.8 for this measure in April, indicating a continued, but still modest, expansion of activity in the US manufacturing sector.
  • Richmond Fed Manufacturing (Tues.): The May reading on manufacturing activity in the Richmond area is expected at 10:00 a.m. ET on Tuesday. The Richmond Fed's manufacturing index should hit 8 this month, down from 14 in April but indicating an increase in activity during the month.
  • New Home Sales (Tues.): New home sales likely rose 2% in April to an annualized pace of 521,000 after March's number saw a 1.5% decline in the pace of sales to 511,000. This number from the Census Bureau is due out at 10:00 a.m. ET on Tuesday.
  • Trade Balance (Weds.): The US trade deficit is expected to have widened slightly in April to $60 billion, up from the $56.9 billion deficit seen in March.
  • FHFA Home Prince Index (Weds.): The Federal Housing Finance Agency's reading on home price increases in March is expected to show a 0.5% appreciation in prices, better than the 0.4% increase seen in February. This report, due out at 9:00 a.m. ET on Wednesday, will also give us data on how much home prices rose in the first quarter of the year.
  • Markit flash services PMI (Weds.): The preliminary reading on US service sector activity in May is expected to cross at 9:45 a.m. ET on Wednesday, and economists expected this reading will rise to 53.0 from 52.8 at the end of April.
  • Initial Jobless Claims (Thurs.): The weekly report on initial jobless claims should show new filing for unemployment insurance totaled 275,000 last week, down slightly from the 278,000 seen the week prior and still a slight uptick from recent readings.
  • Durable Goods Orders (Thurs.): Durable goods orders are expected to rise 0.4% in April, down from the 1.3% increase seen in March. Excluding airline and defense orders, durable goods orders should rise 0.3% in April.
  • Pending Home Sales (Thurs.): Economists expect the number of homes under contract in April will rise 0.7% from the prior month when the National Association of Realtors' latest pending home sales report comes out at 10:00 a.m. ET on Thursday.
  • First Quarter GDP, Second Estimate (Fri.): The second estimate of first quarter GDP growth is expected to show the US economy grew 0.9% to start the year, up from the 0.5% indicated in the first estimate of this number. Personal consumption is also expected to be revised up, to growth of 2.1% from 1.9% at first blush, while both GDP prices on a headline and "core" basis — excluding food and energy — are expected to be unchanged. 
  • University of Michigan Consumer Confidence (Fri.): The final reading on consumer confidence in May from the University of Michigan is expected to come in at 95.5 when the report is released Friday morning. This follows May's preliminary reading of 95.8, which was a huge beat relative to expectations after this measure pulled back some in April.

Market Commentary

Markets are about trust.
And the one thing markets are missing right now is exactly that.
On Sunday, Linette Lopez summarized all the ways markets right now are sort of almost maybe functioning as well as some would like, but that there's still some little piece missing. And that piece is trust, true belief that markets are working and yielding the sorts of economic outcomes (read: growth) you'd hope to achieve. 
Citing commentary from luminaries such as Goldman Sachs CEO Lloyd Blankfein and Bank of England economist Andy Haldane — who is probably the most creative thinker among major central bank officials in the world — Linette outlines a world of confidence, and perhaps even conviction in markets, but one that lacks trust, an ultimate faith that the system works and that the system will hold. 
"Evidence has emerged, both micro and macro, to suggest trust may play a crucial role in value creation. At the micro level, there is now ample evidence the degree of trust or social capital within a company contributes positively to its value creation capacity," Haldane said in a speech on Wednesday titled "The Great Divide."
"At the macro level, there is now a strong body of evidence, looking across a large range of countries and over long periods of time, that high levels of trust and co-operation are associated with higher economic growth.
"Put differently, a lack of trust jeopardizes one of finance’s key societal functions — higher growth." 
Economists at the IMF expect the world economy will grow 3.2%. Not great, but not terrible.
And while many economists and observers will cite things like political instability or demographic trends as reasons for a lack of robust economic growth, it seems that a missing baseline belief that our current systems are something we can believe is the single-biggest missing ingredient right now. 

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