(Open from Monday market) A surge in new cases of Covid raises concerns that we may be able to take a step back here, weighing on stocks to start the week. Wall Street continues to show signs of bond market tracking, and bond yields posted new five-month lows this morning.

Daily cases have tripled from a month ago in the United States, and travel stocks are now taking it by the chin in pre-market trading. Airlines, hotels, casinos and restaurants could all take the brunt if Covid concerns continue to grow. Other companies are not spared. The epidemic is generally worse abroad, which could threaten the business of US multinationals. caterpillar (CAT) and General Motors (GM) both slipped past the bell.

As Covid concerns return to page 1 of the morning news, we could see the return of one of the trends from last year, where markets take hold in the middle of the week but fear sets in. by the end of the week and the weekend. The major indices closed on their lows on Friday – usually a bad sign from a technical standpoint – and like many weeks into the height of the pandemic, Friday’s weakness continued into the new week.

Observe the risk riders

The 10-year Treasury yield fell below 1.25% to new five-month lows on Monday morning. Crude fell below $ 70 a barrel for the first time since June 11. Some of the weakness in crude could reflect the OPEC + deal reached over the weekend, but it could also suggest fears of an economic slowdown if the pandemic remains in the foreground.

Also keep an eye out for volatility. the Cboe volatility index (VIX) gained momentum at the end of last week and it continued until Monday. It’s back above 9pm this morning, a move that’s likely to be noticed. A higher VIX can often signal people to protect themselves against possible market turmoil.

Oddly, the dollar is rising here even as bond yields are falling. This could reflect people who think the United States is less severely affected by this new Covid epidemic.

As Monday continues, we’ll see if the market action here is one of those things where weekend fears lead to a first reaction and then cooler heads prevail, or if concerns continue to weigh. The ‘buy the dip’ mentality has been so strong lately that it’s hard to believe it would suddenly fade away. The question is, at what level is this happening? The 4280 level in the S&P 500 Index (SPX) could be an important item to watch.

What’s on the earnings tap?

Oddly enough, earnings almost seem like a second-tier story today, even as we’re heading into the heart of the season with 76 companies in the S&P 500. Things start with Big Blue, IBM (IBM) is expected to report this afternoon.

A host of other big names are taking over this week, including Netflix (NFLX), American Express (AXP), Johnson & johnson (JNJ), Twitter (TWTR), United Airlines (UAL), AT&T (T), Verizon (VZ), American Airlines (AAL), and Coca Cola (KO).

The impact of rising producer prices, and whether this could reduce margins or cause them to pass costs on to consumers, is a consideration in these companies’ report. The reopening is also the focus, so listen to the leaders’ thoughts on how this is going.

With NFLX in particular, investors are likely to focus on membership growth. That metric was well below what Wall Street had expected in the first quarter and even missed the generally conservative mark offered by the company’s own C suite. He reached 3.98 million, the lowest result since 2013, when just three million customers joined the club.

NFLX executives then told investors to prepare for the worst as the challenges ahead amid vaccinations and economic reopening would be exhilarating. They predicted that new members would only increase by a million in the second quarter, a fraction of the 4.44 million Wall Street predicted. NFLX shares have appeared a bit recently, but have been roughly flat since the start of the year. The company is expected to report after the close tomorrow.

In the tech realm, keep an eye out for the first big chip companies to report, with Intelligence (INTC) and Texas instruments (TXN) on the program for this week.

The season starts with a bang

It’s still early days, but the initial results season numbers look pretty good overall. About 8% of S&P 500 companies reported, and 85% of them reported a positive surprise in earnings, while 90% were surprised on the upside in terms of revenue , FactSet reported.

FactSet now expects a rather astonishing 69.3% growth for S&P 500 earnings in the second quarter, up from 63.9% previously. He expects the average turnover to increase by more than 20%.

This is all positive, but it does mean investors are starting the earnings season with extremely high expectations. So that’s a high bar for companies that report, and if they don’t, they could be punished. The biggest tech stocks like Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) are starting to report soon, and all of them have recently set new all-time highs. This might reflect earnings optimism, but at these levels it will likely take very strong balance sheets to avoid seeing momentum slow down.

Beyond gains: look at crude, housing starts as the week continues

Wall Street fell from recent highs last week as major indices fell in part due to inflation and Covid concerns. The consumer and producer price indexes for June were warmer than expected.

A lot of people find it hard to say, “My everyday life tells me the prices are higher, but the Fed chairman tells me it’s not going to last.” On the other hand, the bond market seems to think that inflation is not here to stay, judging by recent low yields. If inflation is to last, we certainly have fairly low tariffs. This is a situation where we will have to show us that it is transitory.

One thing that might take some of the starch out of inflation is if crude has another week like the last. The energy sector is collapsing lately, which is contributing to Russel 2000 (RUT) small cap index.

On the data side, investors will get a snapshot of real estate tomorrow with housing starts and building permits for June. Housing starts rose faster than expected last time around, but building permits fell, so we’ll see if that continued into June. Otherwise, key numbers are a bit sparse in the coming days, and the Fed will soon enter its “quiet period” ahead of the Federal Open Market Committee (FOMC) meeting scheduled for later this month. All of this could mean an intense focus on income reporting without too much distraction.

Surveillance of the Capitol is also back this week as Congress continues to grapple with the infrastructure bill. Advances there could potentially provide a lift. Or should we say a forklift?

How strong was retail sales, really? Investors received a few conflicting data points ahead of the weekend that are still being digested and debated at the start of the new week. Retail sales in June were off the charts, up 1.3% excluding autos, against consensus expectations of 0.3%. This seemed to indicate that consumers were going out and spending last month as the economy opened up, although if you’re the half-empty glass type, you might point out that some of the strength in retail sales reflected prices. higher due to inflation, rather than volume. Sales.

While retail sales shone, consumer sentiment did not paint so well. University of Michigan consumer sentiment data for early July, also released on Friday, showed a drop to 80.8 in the overall figure from 85 in June. Analysts expected 86.3 according to research firm Briefing.com. Historically speaking, 80.8 is not a horrible number. It was the lowest since February, however, and down from nearly 100 at some point this year. What is it that undermines the feeling? Inflation, maybe. As Barron’s pointed out, after the impact of rising prices, real hourly earnings are down 1.7% from a year ago. This could explain why nine million jobs are vacant despite the continued high unemployment rate.

Boss, I need a raise: Last week, Fed Chairman Jerome Powell told Congress it was important to keep inflation expectations from spiraling out of control. The Fed’s long-standing target is 2%, and the central bank is comfortable allowing inflation to rise above that level for a while here as the economy reopens. Powell expects high inflation to moderate.

But if inflation expectations remain this strong, it could lead to higher wage demands, causing companies to pay more, and possibly raise prices to cover costs. It was the sort of thing that started a “wage-price spiral” in the 1970s that the Fed finally had to erupt with extremely high rates. No one is saying it’s going to happen again, and we’re only talking about a sentiment report here. Nonetheless, these inflation expectations deserve to be watched further when the next sentiment data is released on July 30.

The bond market could signal headwinds in 2022: At recent lows, the closely watched 10-year US Treasury yield fell between 1.25% and 1.3%, falling to 1.29% at the end of last week. There is growing concern that these low levels may indicate concerns about the economic growth of the United States through 2022, and this is certainly worth considering. After all, in 2022 the government’s fiscal stimulus could wane, the Fed could start cutting its bond purchases, and profits will have a huge mountain to climb if they are to match the incredible post-Covid growth of this year. FactSet said analysts expect S&P 500 earnings growth of just 11% in 2022 from 36.7% in 2021.

In other words, there could be a lot of headwinds on Wall Street and the economy at large next year, and maybe that’s what the bond market is telling us with the recent downtrend. returns since peaking above 1.75% in March. An analyst told CNBC on Friday that it was important for the 10-year yield to hang on to recent lows, otherwise the stock market could lose momentum. Another concern is that some of the AAPL, AMZN and MSFT mega-cap Techs have not been able to add to the recent gains. If their momentum slows down, the rest of the market could lose that particular crutch as well.