Wall St Week Ahead: Stocks may stumble on jobs, earnings view
NEW YORK (Reuters) -Stocks may struggle to make headway next week, with jobs data expected 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 LLC in Newark, New Jersey.
But, he said, after the near collapse of Bear Stearns Cos Inc BSC.N, any evidence of similar issues at another bank could lead to a sharp sell-off.
"There's not likely to be a clear-cut trend next week," Praveen said. "We're 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 Friday's jobs report. U.S. 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 wouldn't 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're in a recession," said Barry Ritholtz, director of research at Fusion IQ, an investment firm in New York.
"My sneaking suspicion is that we're 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 April 3, when Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson testify before the Senate.
By Friday's closing bell, the three major U.S. stock indexes turned in a mixed performance for the week: The Dow Jones industrial average .DJI fell 1.2 percent and the Standard & Poor's 500 Index .SPX slid 1.1 percent, while the Nasdaq Composite Index .IXIC edged up 0.1 percent.
EARNINGS LITE
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'm not so sure they're going to hit those targets," he said.
"Now would be the time to come forward."
On Friday, retailer J.C. Penney <JCP.N, for example, slashed 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 Co Inc (BBY.N) on Wednesday could provide further clues on the outlook for the sector. Agricultural biotech company Monsanto Co (MON.N), which this week raised its fiscal 2008 earnings forecast citing strong demand for corn seeds, will likely be a bright spot. Monsanto reports earnings on April 2.
ISM FACTORY, SERVICES DATA ON TAP
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 U.S. 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 on Monday.
(Wall St Week Ahead runs weekly. Any questions or comments on this column can be e-mailed to: kristina.cooke(at)reuters.com)
(Additional reporting by Jennifer Coogan)
