With only a light schedule of economic data and earnings in store for them, traders will have to rely on the "twin dreadnoughts" of oil and interest rates as guideposts in the coming week.
After a deluge of economic reports spurred the markets last week -- including a much-hyped, yet ultimately disappointing, jobs report on Friday -- investors will get a brief respite from government data. There are only three reports on tap for next week -- one less than expected after the ISM Services report was released prematurely -- and they all arrive on Thursday. That day's lineup includes initial jobless claims, wholesale inventories and consumer credit reports.
None of these economic reports is expected to truly roil the market to the extent of last Friday's jobs announcement. That report showed growth decelerating in the U.S. labor market in March, with nonfarm payrolls rising by just 110,000 -- about half the consensus forecast and well below the previous month's gain. The unemployment rate fell to 5.2% in March from 5.4% in February and currently stands at a 3 1/2-year low. Average hourly earnings rose 0.3%.
Economists were expecting nonfarm payrolls to rise by 225,000, for the unemployment rate to fall to 5.3%, and for average earnings to rise by 0.2%.
The weak payroll print had an initially bullish impact on stocks, sending the
up 55 points in early trading, and lifted bonds, with the 10-year Treasury note going from flat to up 10/32 in price. The yield fell to 4.44% from 4.49%.
"The market was correct to initially rally in reaction to the job numbers since it dampens fears of inflation and an aggressive
," says Joe Liro, equity strategist at Stone & McCarthy Research Associates.
All of those gains reversed, however, after the Institute for Supply Management mistakenly released its nonmanufacturing survey several days early. The index came in at 63.1, its best reading since December. Both the nonmanufacturing survey and the ISM's national survey, which also came out Friday, showed fairly strong rises in their prices components, and that -- along with spiking oil -- restoked inflation concerns.
With no such macroeconomic tinder to spark stocks in the coming week, Wachovia strategist Larry Wachtel says "the twin dreadnoughts of oil and interest rates will be forced to steer the market."
Wachtel says last Thursday's Goldman Sachs warning of a possible "super-spike" in oil prices to more than $100 a barrel really "shook up the Street" and could drive up equity market volatility in the coming week.
"Its hard to get a sense now of how high oil can go on the upside," says Wachtel.
Oil's future may be up in the air, but oil's impact on earnings should grow clearer in the coming weeks as earnings are reported. Corporate earnings season unofficially kicks off next Wednesday when Dow component
releases its first-quarter numbers. Analysts are calling for the world's largest aluminum producer to earn 39 cents a share, up from 37 cents last year. Quarterly revenue at the company, which recently announced it would be laying off 2,000 employees in a restructuring move, is expected to be $6.34 billion, a rise of 11% from last year's $5.7 billion.
"Alcoa uses a lot of energy to produce its product," says Bob Pavlik, portfolio manager at Oaktree Asset Management. "So they will be an early indication as to how oil will affect last quarter's earnings."
Liro expects cost-side pressures from rising oil prices to weigh on the bottom lines of consumer discretionary stocks. On the other hand, he predicts there will be a number of upside surprises from energy companies boosted by the spiraling price of crude.
Other companies slated to take the earnings stage on Wednesday include retailer
Bed Bath & Beyond
, biotech player
and agricultural giant
On Thursday April 7,
will announce its second-quarter performance. Analysts anticipate the global consulting company should earn 32 cents, up from 29 cents for the year-ago period.
Also on tap for Thursday are quarterly reports from retailers
Pier 1 Imports
Finally, right on schedule with the start of baseball season this weekend,
will report its fiscal fourth-quarter results on Thursday. The bubblegum card manufacturer is expected to report 4 cents for the quarter on $70 million in revenue, compared with 7 cents a year ago.