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Key data could end or defend recession fears as stocks notch best quarter in a decade

Stocks head into the second quarter propelled by the best quarter in nearly a decade as the long tepid IPO market starts to simmer again.

But the markets also face a reality check in the week ahead with some key data that could help clarify whether the economy is losing steam or just stumbling through a soft patch. The key release is Friday’s March jobs report, with economists expecting 170,000 new nonfarm payrolls, after February’s deeply disappointing 20,000 jobs, according to Refinitiv. There is also important manufacturing data from China over the weekend and the U.S. on Monday.

Lyft Inc’s big IPO Friday on the back of Levi Strauss the week earlier has boosted some optimism for a year of new offerings that some analysts say could rival or surpass the more than $100 billion record of new issues in the year 2000, if conditions remain good.

“The Levi Strauss IPO and the success it had last week encouraged many of these companies to accelerate their timing,” said Michael Arone, chief investment strategist at State Street Advisors. “IPO issuance has been modest relative to history for the last couple of years, so the fact we’re finally seeing some companies come to market may signal some kind of optimism or confidence, but it’s far from the type of thing we’ve seen historically in terms of the euphoria surrounding it.”

Art Hogan, chief market strategist at National Alliance said with $700 million in potential offerings in the wings, this year could surpass the all-time record reached in 2000, when the new issue market was viewed as overheated and many companies without earnings or prospects made it into the public arena during the tech bubble.

“In general, big IPOs tend to drive general enthusiasm for the overall market until they don’t do well,” said Hogan, noting the follow through trading in Lyft, the biggest IPO since Alibaba went public in 2014. Lyft, priced at $72, surged about 20 percent on the opening but closed up just about 8.7 percent at $78.29.

Stocks were higher in the past week, and the S&P 500 turned in its best first quarter performance since 1998. The 12.9 percent gain was also the best quarterly performance since the third quarter of 2009, just as the now 10-year-old bull market took off. The S&P is now less than 4 percent from its record high.

Earnings season kicks off in the next several weeks, and between now and then there could be some high profile warnings on the first quarter, expected to be the first quarter with negative earnings growth in three years.

Arone said while earnings are expected to be weaker, revenues are expected to grow by nearly 5 percent, a positive sign.

“That needs to be reconciled form my perspective. It wouldn’t shock me if companies doe better than expected, and end up with positive year-over-year comparisons,” said Arone.

Trade talks with China remain the overriding issue for markets. Chinese Vice Premier Lui He comes to Washington to meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, who traveled to Beijing this past week.

Analysts expect a deal in the coming months. “We’re likely to get some type of negotiated deal that both sides can claim victory on, where China will buy more U.S. goods, where there is some progress on U.S. intellectual property and technology transfers…But I don’t see a deal that’s going to be a game changer…a big move in one direction. I think the market has accepted that reality,” said Arone.

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