With signs of a slower economy mounting, the near-term outlook for U.S.
stocks isn't rosy, but investors may find comfort this week from the
world's major central banks.
The Federal Reserve will meet on Tuesday and Wednesday, and the
report of weaker-than-expected first-quarter growth could reinforce
expectations the Fed will keep purchasing bonds at a pace of $85 billion
a month.
Low interest rates and ample liquidity provided by the Fed and other
central banks have buoyed global equity markets because low borrowing
costs for businesses and consumers lead to richer corporate profits.
Major U.S. stock indexes hit record highs earlier this month.
Editor’s Note: Put the World’s Top Financial Minds to Work for You
"As long as it looks like central banks are on your side and on
investors' side as far as providing more liquidity, that's going to help
improve sentiment," said Brian Jacobsen, chief portfolio strategist at
Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
"I don't think (Fed officials) have got enough data since the last
meeting to really justify changing policy. I really don't think they're
going to look at slowing the pace of purchases until probably
September."
A strong commitment from the Fed to continue its stimulative policy,
coupled with corporate earnings that have mostly exceeded lowered
forecasts, could help Wall Street extend a rally despite signs that the
U.S. economic recovery is losing momentum.
Even though the market ended flat on Friday, its performance last
week was positive. The Standard & Poor's 500 rose 1.7 percent, the
Dow Jones Industrial Average was up 1.1 percent and Nasdaq Composite
Index gained 2.3 percent.
The economy expanded at a 2.5 percent annual rate in the first
quarter, the Commerce Department said on Friday, short of expectations
of 3.0 percent and setting a cautious tone.
A full slate of key economic indicators will be released this week,
including personal income and spending, the Institute for Supply
Management's manufacturing and services activity indexes, pending home
sales, the Chicago purchasing managers' index and consumer confidence
from the Conference Board.
The highlight of the week will come on Friday when the Labor Department releases its employment report for April.
Economists polled by Reuters are looking for job growth of 150,000,
up from 88,000 in March. The unemployment rate is likely to remain
unchanged at 7.6 percent.
The GDP data "suggests maybe the momentum is much weaker that what
was priced in," said John Praveen, chief investment strategist at
Prudential International Investments Advisers in Newark, New Jersey.
"We have had a very strong rally, so people are looking for any
trigger for profit-taking," he said. Praveen said the market could see a
5 percent pullback in the months ahead should upcoming data prove to be
weaker than expected.
Stocks had a wild run last week after hackers attacked the website of
stock broker Charles Schwab Corp and a false report on the Associated
Press' Twitter account about explosions at the White House sent the
market into a brief tailspin.
On Thursday, a software glitch shut down the Chicago Board Options
Exchange for half the day, preventing trading in options on two of the
stock market's most closely watched indexes and delivering the latest
blow to confidence in the way U.S. financial markets operate.
EUROPE, EARNINGS
The European Central Bank will meet on Thursday and investors will
watch to see if it delivers an interest-rate cut as the eurozone economy
deteriorates further. Further monetary easing would encourage investors
to buy riskier assets and boost stocks.
"The market has been rallying on the fact the ECB might actually
start to do something; if the U.S. market reacts in the same way, that
might get the market rallying," said John Canally, an investment
strategist and economist for LPL Financial in Boston.
With earnings reporting now half over, investors will look to see if
companies can continue to exceed profit estimates despite lackluster
revenue.
According to Thomson Reuters data, of the 271 companies in the
S&P 500 that have reported earnings for the first quarter, 69
percent have beaten analysts' expectations, above the 63 percent average
since 1994.
However, only 43.9 percent have topped analysts' revenue forecasts,
well below the 62 percent average since 2002 and the 52 percent rate for
the last four quarters.
Analysts now see earnings growth of 3.8 percent this quarter, up from expectations of 1.5 percent on April 1.
This week Dow components reporting results will be Pfizer and Merck.
Other companies scheduled to report include Loews Corp., Aetna Inc,
Chesapeake Energy, Visa Inc., Viacom Inc. and Kraft Foods Group Inc.
David Joy, chief market strategist at Ameriprise Financial based in
Boston where he helps oversee about $700 billion in assets, said the
lackluster figures suggest the second quarter may not be as robust as
hoped.
"Right now, markets are going through an adjustment process, trying
to figure out just how robust the economy is here and overseas as well,"
Joy said. "You have investors sort of biding their time. They are
invested, but not with complete conviction."
Editor’s Note: Put the World’s Top Financial Minds to Work for You
© 2013 Thomson/Reuters. All rights reserved.
No comments:
Post a Comment