UPDATE 1-Wall St Week Ahead: Jobs data, election may overshadow earnings

Sun Oct 28, 2012 11:28am EDT

By Ryan Vlastelica
    NEW YORK, Oct 28 (Reuters) - Earnings season may be only
half over, but the focus on profits should subside this week as
investors turn their attention to the coming election and
Friday's jobs data - the last major economic indicator before
the Nov. 6 contest.
    More bellwether companies are set to report results in what
will be another "peak week" of the earnings season. Such a
flurry of numbers normally holds Wall Street's attention, and it
can lead to market swings. But volume and volatility may be
slight this week, with market participants opting to remain on
the sidelines ahead of the jobs data and the election. 
    The U.S. government's October jobs report will give a
snapshot of the current labor market. It could also give a bit
of a lift to President Barack Obama, should it come out better
than anticipated, or help Republican candidate Mitt Romney - if
it is worse than forecast.
    Polls currently indicate that President Obama is a slight
favorite to win on Nov. 6, but the race will be tight. The most
recent Reuters/Ipsos poll of likely voters shows the president
ahead - 47 percent to 45 percent. 
    The Standard & Poor's 500 Index fell 1.5 percent last week,
largely because of a spate of earnings disappointments. The Dow
Jones industrial average slid 1.8 percent last week, and the
Nasdaq composite index dropped 0.6 percent.
    What is notable, however, is that rebounds have been brief
and quick to attract sellers.
    Some investors cited the approaching election as a barrier
to committing new capital to the market. 
    "Not many people have the stomach to plop down their bets
when polling is so close," said Hayes Miller, the Boston-based
head of asset allocation in North America at Baring Asset
Management. "For the most part, investors will wait and see what
happens."
    Miller, who helps oversee more than $50 billion in assets,
said the trend of caution would be especially pronounced in the
health care, financial and energy 
sectors - three areas that may face different regulatory
outlooks, depending on the election's outcome.
    "These are the ones really in play," he said.
    Expectations for the nonfarm payrolls report, set for
release on Friday, are by no means certain, either. Analysts
expect 124,000 jobs were added in October - up 10,000 from
September. However, the unemployment rate is also seen ticking
higher - to 7.9 percent from 7.8 percent. 
    A payroll surprise in either direction could further cloud 
expectations for the election's outcome. 
    "A big change in payrolls could cause some uncertainty over
the winner," said Jerry Harris, president of asset management at
Sterne Agee, in Birmingham, Alabama. "I don't expect a big
surprise, but while the S&P doesn't seem especially vulnerable
at these levels, I don't think it is in a hurry to go up,
either."
    The market will also have to contend with the weather.
Hurricane Sandy is expected to hit the eastern third of the
United States, including the East Coast, by Monday night with
torrential rains, high winds, major flooding and power outages.
In New York, officials will close the city's bus and subway
lines, and commuter railroads at 7 p.m. EDT Sunday. Decisions
have not been made whether to close bridges and tunnels leading
to Manhattan in preparation for the storm's arrival.
 
    At the New York Stock Exchange, the plans call for business
as usual. The exchange issued a statement saying it has
contingency plans to have the market running, adding that it has
back-up power generation facilities. The Big Board will make
accommodations for critical staff and traders.
    Rival marketplace NASDAQ OMX said in a statement that it
plans to make sure its systems are ready. It will communicate
with its members before, up to and after the storm.
   
    EARNINGS IN PLAY, IF NOT IN FOCUS
    While the market at large may be waiting on news events,
individual stocks could still be volatile as earnings season
grinds along. More than half of the S&P 500 components have
reported results so far. This week, though, will bring reports
from some marquee names such as Dow components Chevron 
and Pfizer, as well as S&P 500 stalwarts Visa,
Ford Motor and Starbucks 
    This earnings season, a number of high-profile companies
have missed estimates, including sour notes last week from 
Apple Inc, United Technologies and DuPont
.
    With 54 percent of the S&P 500 companies having reported
results so far, 62.5 percent have topped earnings expectations,
under the 67 percent average over the past four quarters. Just
37 percent have topped revenue forecasts, well under the 55
percent over the past four quarters.
    The earnings disappointments led to some intensive selling,
driving the Dow industrials down 243.36 points last Tuesday.
    The S&P 500 has ended down in five of the past seven trading
sessions. Those declines have pushed the benchmark S&P under its
50-day moving average of around 1,434, leading some analysts to
believe it may be ready for a bounce.
    "We'll use any pullback as an opportunity to buy," said Chip
Cobb, senior vice president at Bryn Mawr Trust Asset Management
in Bryn Mawr, Pennsylvania. "Even though we've seen a number of
companies miss expectations and be overly cautious, we're
focusing on how a majority have beaten."
    Cobb said he was especially looking to results this week
from U.S. Steel Corp. Its stock is down almost 20 percent
so far this year.
    "Steel companies have been participating really poorly, and
I'm anxious to see if that will continue," he said.
    
    (Wall St Week Ahead runs every Sunday. Questions or comments
on this column can be emailed to:
ryan.vlastelica(at)thomsonreuters.com)
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