U.S. stock market to start week with worry list
Posted by aangsunu on 6 June 2010
source : marketwatch
NEW YORK (MarketWatch) — The U.S. stock market on Monday begins in a humbler place, with the Dow Jones Industrial Average back under 10,000 and the euro, the market’s gauge of Europe’s ability to stem its debt, at a four-year low.
“Investors are facing a little bit of headline fatigue,” said Howard Ward, portfolio manager at Gamco Growth fund.
“Some people are having a hard time stomaching it any more and are picking up their money and going elsewhere,” said Ward, listing gold, the dollar and bonds as among the choice venues among those fleeing the euro and equities.
And there’s no end in sight to the upheaval that put stocks in their current precarious spot, as Friday’s much-awaited jobs report only added to the list of worries.
“There is a lot to be concerned. One problem you can deal with, but when it starts piling up, it’s an added concern as far as taxing people’s attention and focus,” said Ed Crotty, chief investment officer at Davidson Investment Advisors.
The pileup of worries on Friday had the major U.S. stock indexes finishing down for the year. The Dow Jones Industrial Average (DJI:^DJI – News) fell 324.06 points, or 3.2%, to 9,931.22, off 2% for the week. The third biggest point loss of the year snapped a two-session winning streak, the first for the Dow in more than a month.
The S&P 500 fell 37.95 points, or 3.4%, to 1,064.88, down 2.3% for the week, while the Nasdaq Composite (COMP – News) declined 83.86 points, or 3.6%, to 2,219.17, off 1.7% from the prior Friday’s close.
The losses came as the euro hit a four-year low against the U.S. dollar (CUR-EURUSD – News) and after the monthly jobs report failed to live up to its billing, with the Labor Department reporting total payrolls including temporary census workers climbed by 431,000 in May and the unemployment rate fell to 9.7%. Read more about the data that damped the U.S. growth picture .
“People were really hanging a lot on the jobs report. Even though the unemployment rate went down more than expected, by levels that mattered to the market it was a disappointment,” said Crotty of expectations that more than 500,000 jobs would be added to U.S. payrolls.
Undermining confidence further was a fresh round of credit jitters in Europe that came as Hungary’s new government added to sovereign-debt worries, with the country’s spokesman for Prime Minister Viktor Orban quoted as saying talk of default was not “an exaggeration.” Read about accusations predecessor lied about financials .
Yet Ward and Crotty both believe the stock market’s focus eventually will return to corporate America and the shaky but improving domestic economy.
“From a macro perspective, the environmental disasters, political issues, you name it, there’s plenty to worry about, but in looking at the economic potential of companies, the risk-reward looks pretty good,” said Crotty.
“For the most part, companies are providing very positive guidance for sales and profits for the balance of this year and going into next year,” said Ward.
That includes large cap technology firms with exposure to Europe saying they haven’t seen any impact yet said Ward, who pointed to Cisco Systems Inc. (NasdaqGS:CSCO – News) CEO John Chambers as voicing the most optimism in years.
While the peak weeks of the first-quarter earnings season are finished, the weeks ahead will bring the last few companies reporting earnings for the quarter as well as the beginning trickle of companies reporting for the second.
In the coming week, three S&P 500 companies are expected to report earnings for the first quarter and one is expected to release results for the second.
On Monday, Altera Corp. (NasdaqGS:ALTR – News) , a maker of programmable logic devices used in electronic systems reports quarterly results, followed by water filtration company Pall Corp. (NYSE:PLL – News) on Tuesday.
Estimated share-weighted earnings for the S&P 500 for the second quarter 2010 stood at $184.3 billion as of Friday, slightly under the prior week’s $184.5 billion, according to research compiled by Thomson Reuters analyst John Butters.
In the S&P 500, there have been 61 negative EPS preannouncements issued by corporations for the second quarter 2010 compared to 51 positive preannouncements, according to Thomson Reuters’ Butters.
The week ahead includes weekly jobless claims data and retail sales for May, along with the Federal Reserve’s Beige Report on Wednesday, which analysts expect will continue to reflect modest economic expansion and some pickup in manufacturing and housing.
But it remains to be seen just how much attention is paid to U.S. economic reports amid the market’s fixation on global news events.
“Even with the heightened volatility, the news flow has become paralyzing in the context of a still fragile global economy with daily government event risk,” said Peter Boockvar, equity strategist at Miller Tabak.
“European sovereign credit issues, bailouts, Hungary politicians, German short-selling rules, Chinese tightening, oil drilling moratoriums, the political abyss that is Japan, etcetera has made the market almost impossible to trade in the very short term,” Boockvar said.
In all likelihood, tensions in the Middle East will calm, the euro-zone crisis will be averted, North Korea and South Korea will not go to war, and BP (NYSE:BP – News) will manage to seal the Gulf Coast oil spill, said Kevin Giddis, a managing director at Morgan Keegan & Co.
But the probability that all four scenarios will have favorable outcomes is less than when the odds are considered as individual events, Giddis added.
“With so many sources of worry lurking, it seems premature to declare that the flight-to-quality trade has run its full course,” Giddis said.