United States stocks may struggle to make headway this week, with jobs data set to provide more evidence of recession and more companies likely to revise their guidance as the earnings reporting season approaches.
Investors will also keep a close eye on the credit markets to determine if the Federal Reserve’s actions to provide liquidity are taking effect, said John Praveen, Chief Investment Strategist at Prudential International Investments Advisers in Newark, New Jersey.
But he said after the near collapse of Bear Stearns, any evidence of similar issues at another bank could lead to a sharp sell-off.
“There is not likely to be a clear-cut trend next week,” Praveen said. “We are still in that high volatile period where we have various cross currents. On the negative side will probably be the macro data and news on banks, and on the positive side, any signs the Fed’s actions are bearing fruit.”
The economic highlight of the week is jobs report.
US employers are expected to have cut payrolls for a third straight month during March. Economists polled by Reuters estimate a reduction of 58,000 jobs.
“I would not be surprised to see a deep negative number, and that will be the final nail in the coffin for the people who are not sure if we are in a recession,” said Barry Ritholtz, director of research at Fusion IQ, an investment firm in New York.
“My sneaking suspicion is that we are in the early stages of a recession and that this will be a deeper and longer one than in 2001.”
More clues on the state of the economy and the outlook for interest rates could come on Thursday, when Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson testify before the Senate.
By Friday’s closing bell, the three major US stock indices turned in a mixed performance for the week: The Dow Jones industrial average fell 1.2 per cent and the Standard and Poor’s 500 Index slid 1.1 per cent, while the Nasdaq Composite Index edged up 0.1 per cent.
With the first-quarter earnings reporting season fast approaching, a number of companies may begin revising their earnings guidance next week, said Joseph Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania.
“The estimates for S&P ex-financials for the first quarter are a little high, I think, and I am not so sure they are going to hit those targets,” he said.
“Now would be the time to come forward.”
On Friday, retailer JC Penney, for example, reduced its first-quarter earnings outlook and said it expects the environment to remain difficult throughout 2008.
Scheduled earnings releases are few and far between next week. Fourth-quarter results from retailer Best Buy on Wednesday could provide further clues on the outlook for the sector.
Agricultural biotech company Monsanto Co, which this week raised its fiscal 2008 earnings forecast citing demand for corn seeds, will probably be a bright spot. Monsanto reports earnings on Wednesday.
Apart from the jobs report, the week’s economic data includes a pair of reports on the economy from the Institute for Supply Management.
On Tuesday, the ISM’s report on US manufacturing conditions will be released. The median forecast of economists polled by Reuters for the ISM’s manufacturing index is 47.4, down from 48.3 in February.
The ISM report on the service sector of the economy is scheduled for Thursday, with economists expecting a reading of 48.3 in March, down from 49.3 in February.
Battipaglia noted that as the market is expecting a weak reading, the number probably will not move the stock market unless it is a positive surprise.
Factory orders for February and revised durable goods orders for February are due on Wednesday; the March Chicago PMI (purchasing managers’ index) is due tomorrow. (Reuters)
58,000 Jobs are expected to be cut in the US
47.4 Median forecast for the ISM’s index
Bleak US job data may bring stocks down