Coming Week: Bulls Grow Louder
On Friday, the Labor Department will release information on the unemployment rate and nonfarm payrolls. On Thursday, initial jobless claims come out. Preceding those both will be the
ADP
(ADP) - Get Report
employment report on Wednesday.
All those numbers are expected to weaken, but now that the economy is starting to look like it's escaped with positive gross domestic product growth in both the first and the second quarters of the year, investors are taking heart.
"You probably have a bias going into this now where people are starting to believe the economy may be better than expected," says Jim Paulsen, chief investment strategist at Wells Capital Management.
"What comes out of the employment reports next week sets the tone for the month. If you have numbers that are woefully weak, you could have some pretty big adjustments, while if reports come in as expected or better, you are probably going to see big upward moves in the stock market."
Paulsen says he's also going to be watching the Institute for Supply Management report on the health of the manufacturing economy, which comes out on Monday.
Ted Weisberg, floor trader at Seaport Securities, agrees that there's a bullish tone to the market activity heading into next week.
"I think the market in general is acting remarkably well in light of all the negative economic news," he says. "Most of the major indexes are bouncing up against their 200-day moving averages, and a move above those would be technically very positive."
However, Weisberg cautions that "there is a real risk that negative surprises are out there." He notes that "slower growth and the prospect of higher interest rates is not a positive scenario for the stock market."
He also says that last week may have skewed positive because it ended the trading month of May, and "there's a tendency to mark things up when you get to the end of the month."
Stocks did enjoy a good 4-day week last week, which was shortened by Monday's Memorial Day holiday. The
Dow Jones Industrial Average
rose 1.3% over the four trading sessions to 12,638.32, while the
S&P 500
gained 1.8% to 1400.38. The
Nasdaq Composite Index
added a full 3.2%, ending the week at 2522.66.
Shawn Price, portfolio manager at Navellier Calculated Investing, says there's one thing all the market bears didn't count on: the global growth story.
"The weak dollar, combined with strong international growth, means there's a huge global buildout going on," he says. "I don't think analysts have the mechanisms to gauge why growth is so strong," because "they don't have all the networks and channels to analyze" the global factors in addition to the domestic ones.
"Anything outside of housing and, to a large extent, the financial sector, is in a pretty healthy situation," Price says.
In housing itself, data continue to come in weaker and weaker even as optimism about the broader economy takes root. Tuesday holds earnings news from
Toll Brothers
(TOL) - Get Report
and
Hovnanian Enterprises
(HOV) - Get Report
, both of which should provide a progress update on the housing downturn.
In addition, Monday's earnings report from
Thornburg Mortgage
(TMA)
, which grabbed headlines for a time as a poster child of the subprime meltdown, could be interesting.
The rest of the earnings calendar is light. A few reports on Thursday --
Del Monte
(DLM)
,
Vail Resorts
(MTN) - Get Report
and
Take-Two
(TTWO) - Get Report
-- will be some of the only highlights.
Stocks have probably been helped by crude oil's rapid easing after it broke through $135 last week. There's a strong bullish case to be made that worldwide demand is driving prices higher, but the rapid rise in oil has led some to voice concern about a speculative bubble.
If oil continues to fall, it could hurt investors in the commodity itself, in related ETFs such as the
U.S. Oil
(USO) - Get Report
, or in sector stocks including
Exxon Mobil
(XOM) - Get Report
and
ConocoPhillips
(COP) - Get Report
.
Investors will also be watching the fixed-income area of the market.
"The 10-year Treasury yield above 4% is more positive than negative," Weisberg says. "To me, it indicates that people who flocked to the Treasury market in the first quarter are now beginning to regain some confidence. Of course, it also could be that people are concerned about inflation."
Paulsen agrees. "If growth is going to prove to be stronger than expected again, you could see bond people ticking up the yield on concerns about inflation and
Fed
tightening." He adds that at current levels, "there's really no buffer in the 10-year for inflation."