By Caroline Valetkevitch
NEW YORK, July 28 This week on Wall Street could
be a summer blockbuster, with the marquee featuring a triple
bill: the Fed, jobs and earnings.
Of the three, the Federal Reserve has the most potential to
upset the market. The Federal Open Market Committee is expected
to release a statement on Wednesday after a two-day meeting.
Fed Chairman Ben Bernanke jolted markets in late May by
saying the U.S. central bank planned to ease back on its
stimulus efforts once the economy improves. Investors have been
glued to his every comment since then.
"The Fed can easily either scare investors or encourage
investors without having to say very much," said Bryant Evans,
portfolio manager at Cozad Asset Management in Champaign,
It "tends to create the biggest knee-jerk reactions out of
As part of its quantitative easing policy, the Fed has been
buying Treasury debt and other bonds each month to keep interest
rates low and promote growth.
Stocks have rallied for most of this year, with both the Dow
and the Standard & Poor's 500 hitting record highs, partly
because of the Fed's stimulus efforts.
The market slid after Bernanke's comments on May 22, with
the S&P 500 dropping nearly 6 percent in the month that
But remarks from Bernanke and other Fed officials since then
have calmed the market and erased those declines.
Bernanke reassured markets on July 17, saying the timeline
for winding down the U.S. central bank's stimulus program was
not set in stone.
The S&P 500 is up 18.6 percent for the year so far.
Trading was more subdued last week, with more focus on
earnings. The S&P 500 ended the week with a dip of just 0.03
percent, breaking its four-week winning streak.
While some analysts said the CBOE Volatility Index
did not appear to be pricing in a lot of volatility, there could
still be a shift in sentiment. On Friday, the VIX fell 1.9
percent to end at 12.72.
Frederic Ruffy, an options strategist for WhatsTrading.com
in Chicago, said, "I do expect to see an increase in volatility"
this week, "but that increase is coming after a week of very
Some market attention has also shifted to speculation over
possible successors to Bernanke, though a senior White House
official said on Friday that no announcement is imminent.
President Barack Obama has signaled that Bernanke is likely to
step down when his second four-year term as Fed chairman ends on
Jan. 31. Former U.S. Treasury Secretary Lawrence Summers and
current Fed Vice Chair Janet Yellen are among names cited.
IT'S ALL ABOUT JOBS
Friday will bring the Labor Department's July employment
The job market's recovery is seen as key to the future of
Fed policy. The Fed has said it will keep interest rates at
historic lows, where they have been for more than four years,
until the U.S. unemployment rate drops to 6.5 percent.
Employers are expected to have added 185,000 jobs to their
payrolls in July, according to economists polled by Reuters.
That's slightly below June's count of 195,000 new positions.
The U.S. unemployment rate is expected to dip to 7.5 percent
in July from 7.6 percent in June.
"July historically has been all over the place, in terms of
employment. Factories often times do shutdowns in July, and
there's turnover in agriculture," Evans said.
Analysts have worried that big gains in jobs numbers could
prompt an early end to the Fed's bond buying, but stocks rose
sharply earlier this month when June's payrolls far exceeded
While the jobs report is expected to be the biggest piece
of economic news this week, the economic calendar includes data
on gross domestic product and the Chicago Fed Midwest
Manufacturing Index for June. The Institute for Supply
Management's U.S. manufacturing index for July and monthly car
sales will also be part of the mix.
EARNINGS SEASON'S SECOND HALF
With results already in from 259 of the S&P 500 companies,
the earnings season has entered its second half.
But this week will still be one of the heaviest of the
season, with 131 names from a wide range of industries due to
report results, including Time Warner Cable, Chevron
, Coach, U.S. Steel and Allstate.
Stronger-than-expected results since the start of the season
have pushed up the growth estimate for the quarter.
Second-quarter earnings are now expected to have increased 4.1
percent, up from an estimate of 2.8 percent a week ago, Thomson
Reuters data showed.
Revenue growth, at 1.6 percent as of Friday, has not been
strong, but 56 percent of companies so far are beating
expectations, above the 48 percent average of the last four
"We are at all-time highs in a lot of these names, and I
think this earnings season is supporting that," said Natalie
Trunow, chief investment officer of equities at Calvert
Investment Management, which has about $13 billion in assets.
She said that also means the market may be "vulnerable to
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