Before The Bell - Investors return from the long Easter holiday weekend (the U.S. stock market was closed on Friday in observance of Good Friday) having to digest the much-anticipated report on the U.S. labor market, which was released on Friday morning. The data provided a very encouraging reading on the domestic economy and will likely have a positive impact on trading when the market opens. On point, the U.S. equity futures presage a higher start to the new trading week stateside.

As noted, the March jobs report from the Department of Labor made for a very favorable reading. Specifically, nonfarm payrolls surged by 916,000 positions last month, easily topping the consensus expectation of 660,000; the totals for January and February also were revised higher. Likewise, the nation’s unemployment rate fell from 6.2% in February to 6.0% in March. And the average hourly earnings, which many economists study for signs of inflationary pressures, came in below expectations on both a sequential and year-over-year basis. This report was all that Wall Street could possibly ask for, as it showed that the economy is recovering from the coronavirus-driven retreat, but inflation data are not suggesting that it is in danger of overheating. The yield on the 10-year Treasury note fell seven basis points on Friday, to 1.68%, following the release of the labor data. That said…

The Federal Reserve will continue to monitor the pricing data for inflation signs. Although inflation does not to appear to be a near-term concern, the investment community is watching to see if the massive COVID-19 stimulus packages will lead to a spike in inflation in the coming years. With the recent data suggesting that the U.S. economy is recovering nicely and pickup in inflation is possible when the bills come due on the recent spending, investors may be wise to monitor the banking stocks. Looking forward, lending institution stand to benefit from rising rates, as it helps their earning power. The banking stocks are in the value category, which has been on the radar of investors over the last few months, as worries about Treasury yields had taken some starch out of the high-growth names. The banking stocks may prove to be a long-term play on the likelihood of a pick-up in inflation down the road.

So what are the storylines for Wall Street this week? Our sense is the economy will be out front, with the aforementioned jobs data to digest and reports due over the next five days on nonmanufacturing activity and producer and consumer prices. We also will get the minutes from the latest FOM meeting on Wednesday afternoon. The economic data will bridge the gap for traders until the start of first-quarter earnings season, which kicks off next week (April 14th) with the release of quarterly results from banking giant JPMorgan Chase (JPM). Next week, the earnings beat will include quarterly results from a number of the nation’s largest banks.

Investors also will be monitoring the Biden Administration’s push for a major infrastructure spending plan. With many Wall Street pundits thinking that an infrastructure bill from Capitol Hill will likely pass later this year, it may be a good time to give the stocks of the infrastructure and infrastructure-related companies a closer look. Not surprisingly, shares of heavy machinery maker Caterpillar (CAT) are among a group to get a boost recently from the improving economy and infrastructure spending talks. Investors also may want to look at some of the stocks of alternative energy and environmentally friendly companies, as the Democratic proposed infrastructure plan will likely include a lot of “green” initiatives. The race to produce quality battery-powered cars is in high gear among the world’s major automobile makers.

Before the market, the equity futures, as noted above, point to a higher opening to trading stateside. Friday’s jobs report seems to be the perfect cocktail for the bulls, as it indicated that the U.S. economy is improving at a faster pace than many economist expected, but also that showed inflation (in the form of average hourly job wages) is still looking benign. So far overseas, the tidings have been positive, with the main indexes in Asia finishing higher overnight and the major European bourses comfortably in positive territory as trading moves into the back half of the session on the Continent. Stay tuned. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.