WEEK OF APRIL 28 -- MAY 4
Wall Street to Search
for Clues on Rebound
Wall Street’s euphoria may fade this week as investors take a closer look at the economy after a recent run-up on surprisingly good results from corporate America.
As the war in Iraq slips from radar screens, stock traders have turned their focus to prospects for the economy and corporate profits, searching for clues to whether a much-anticipated rebound is finally taking place.
Along with the continuing flood of earnings, Wall Street has a slew of key reports on the economy to sort through this week, including data on consumer confidence, the manufacturing sector and employment.
A closely watched speech before Congress by Federal Reserve Chairman Alan Greenspan also will garner close attention.
Although many reports on the economy are being brushed off as tainted by the war in Iraq, the stock market’s rally in recent weeks has made it particularly vulnerable to bad news on the economic front, according to analysts.
“The numbers, in general, should be improvements over prior months. The question is: Is it going to be enough improvement to satisfy the market?” said Benjamin Pace, managing director at Deutsche Bank Private Wealth Management.
Anxiety about severe acute respiratory syndrome, or SARS, which has killed more than 300 people worldwide, mostly in Asia, is another reason for investors to be wary, analysts said.
Consumer spending has been the linchpin of U.S. economic growth, and analysts say they will be looking at a key report on consumer confidence this week to help determine whether Americans will maintain their spending habits.
Economists in a Reuters survey predicted that the Conference Board’s consumer confidence index rose in April to 69.8 from 62.5 in March.
The Institute of Supply Management’s manufacturing sector survey, however, is expected to show the beleaguered sector is still struggling. Economists on average forecast a rise in the index to 47.3 in April from 46.2 in March. A reading below 50 generally indicates contraction.
Lingering weakness in the U.S. job market could also be a cause for concern. The government’s monthly jobs report Friday is expected to show that the economy lost 53,000 jobs in April, while the unemployment rate rose to 5.9% from 5.8%.
But Wall Street’s optimists are likely to blame any weakness on the Iraq war, which whipped up uncertainty and kept many companies from hiring or making spending decisions, said Milton Ezrati, senior economic strategist at Lord Abbett & Co.
“We’re back to fundamentals, but it’s very hard to read the fundamentals because they all come from that period before the war situation was resolved,” Ezrati said. “So investors are loath to make too big a bet on numbers they think are less than definitive.”
On Wednesday, investors will also closely eye Greenspan’s testimony on U.S. monetary policy before the House Financial Services Committee for clues to the Fed chief’s take on the economy’s health.
But the ever-cryptic Greenspan will avoid being pinned down on where interest rates are headed.
“He will leave it an open question as to what the Fed is going to do,” said Ed McKelvey, an economist at Goldman, Sachs & Co. in New York. “The Fed is not disposed to easing rates, but it’s not at the point of ruling that out either.”
Also this week, a number of blue-chip companies are due to report quarterly earnings.
So far, the earnings season has come as a pleasant surprise for Wall Street, with many companies meeting or beating expectations for the first quarter. But critics say companies have been beating sharply lowered expectations mostly because of cost cutting.
“Folks will continue to be a bit more skeptical on earnings until top-line numbers come back strong,” said Richard Nash, chief market strategist at Victory Capital Management.
In addition, the outlook for corporate profits in the quarters ahead remains murky, a factor that could help keep the stock market’s gains in check, analysts said.
Of the Standard & Poor’s 500 companies that have issued forecasts for the second quarter thus far, more than half have warned that their earnings would be worse than expected, according to earnings tracker Thomson First Call.
“People are eventually going to switch from saying, ‘Earnings in the first quarter did OK,’ to, ‘That’s in the past, but what’s going on in the future?’ ” said Jon Brorson, managing director of equities at Neuberger Berman Inc. “You want to see some indications that things are improving -- that we’ve had an upswing after the war.”
Here is a brief roundup of upcoming economic news for the week.
Today: Commerce Department reports on personal income and spending for March; McDonald’s and Procter & Gamble issue third-quarter earnings reports.
Tuesday: Conference Board reports on consumer confidence in April; Labor Department reports on employment cost index; Senate Judiciary Committee holds hearings on generic drugs; American Bar Assn. task force issues recommendation on code of conduct for corporate lawyers; Bristol-Myers Squibb, DuPont, Halliburton, Northrop Grumman and U.S. Steel all are due to issue quarterly earnings.
Wednesday: Federal Trade Commission opens three-day forum on unsolicited commercial e-mail, also known as spam; Fed Chairman Alan Greenspan delivers semiannual report to House Financial Services Committee; Clear Channel Communications and Barnes & Noble issue quarterly reports.
Thursday: AES, Exxon Mobil, John Hancock, Safeway and Walt Disney issue quarterly reports; Labor Department reports on first-quarter productivity; Commerce Department reports on construction spending for March; Labor Department reports on weekly jobless claims; Freddie Mac reports on mortgage rates; automakers report sales figures for April; Institute for Supply Management issues its report on the manufacturing sector for April.
Friday: Commerce Department reports on factory orders for March; Labor Department reports on employment for April; ChevronTexaco issues quarterly report.
