WALL STREET WEEK AHEAD
MORE volatility could be in store for US stocks this week as investors grapple with less certainty about the US economic outlook and a new blow to the financial sector after JP Morgan Chase’s trading loss.
Europe is expected to keep investors jumpy as well, with inconclusive results from the recent Greek election and the country’s future appearing more worrisome.
The US economic picture appears cloudy these days, with some data showing a more positive trend and other reports showing the opposite. An index of consumer sentiment rose to its highest in a more than four years, but April’s US jobs report showed another monthly decline in hiring.
This week brings minutes from the last Federal Reserve meeting, which investors will look to for more guidance on whether the central bank plans to give additional help to the US economy.
Stocks closed lower for a second straight week on Friday after a week of choppy trading. Strategists say that is likely to be the case again in days to come.
“Expect more volatility. We’re still seeing this natural risk aversion. We expect any source of bad news to trigger a sell-off, but we’re still not in a red-alert area,” said Omar Aguilar, chief investment officer of equities for Charles Schwab.
“The good economy in the US is leading the way, with the Federal Reserve being very accommodating.”
News that JP Morgan Chase, the largest US bank by assets, lost billions of dollar on bad trades raised new worries that the financial sector was not on the mend. The KBW bank index fell 1.2 per cent on Friday.
The S&P financial index has lost ground since rallying 21.5 per cent in the first quarter. The index is still up 13.6 per cent since the start of the year.
Wall Street will on Wednesday scrutinise the minutes from the Fed’s late April meeting.
At that 24-25 April meeting, the FOMC repeated its expectation that interest rates would not rise until late 2014 at the earliest, and it took no action on monetary policy.
But Federal Reserve chairman Ben Bernanke spurred stock market gains when he told reporters on 25 April that “we remain entirely prepared to take additional balance-sheet actions as necessary to achieve our objectives. Those tools remained very much on the table and we would not hesitate to use them, should the economy require that additional support.”
More focus may be on the Fed and economic data this week, with the first-quarter US earnings period nearly done. Ninety per cent of S&P 500 companies have already reported results.
Major retailers set to report earnings this week include Home Depot, a Dow component, and JC Penney, both tomorrow; Limited Brands, parent of Victoria’s Secret, and discount chain Target on Wednesday; Wal-Mart Stores, the world’s largest retailer and a Dow component, is set to report earnings on Thursday before the opening bell.
The week’s mostly closely watched economic indicators will include the US Consumer Price Index and retail sales, both for April, due tomorrow, followed by April housing starts and industrial output and capacity utilisation, all on Wednesday.
In Europe, problems with the Greek elections have raised the risk of it exiting the Eurozone.
“I think earnings and valuations are still very compelling. Unfortunately, what we’re looking at on earnings and valuations is going to be overshadowed by the fact that we’ve got these global issues we’re dealing with: Greece and France and their elections, and debt issues and the possible breakup of the euro,” said Evan Nowack, managing director at HighTower’s Leventhal Group.