With Joey a bear now, look out above. -g-
Stocks May Drop on Jobs, Consumer Data
Sunday October 27, 12:19 pm ET
By Chelsea Emery
NEW YORK (Reuters) - Economic data showing higher unemployment and weaker
consumer confidence will grab the spotlight this week, pushing stocks lower as the
rapid-fire pace of earnings season ends.
"Those numbers will be disappointing," said Joseph Battipaglia, chief investment officer
for Ryan, Beck & Co. "The short-term trader will take profits and someone looking to
commit cash will hesitate on the news. I see the market shading a little lower."
Economic updates include gross
domestic product for the third
quarter, October unemployment
statistics and The Conference
Board's consumer confidence
reading. The latter is particularly
important to investors since
consumer spending underpins
about two-thirds of the nation's
economy.
Economists surveyed by Reuters
anticipate the data will show
consumer confidence weakened in
October, while unemployment rose.
A bright spot, however, may be
early GDP data, for which market
pros forecast a third-quarter gain.
But "even if there's a strong GDP number, any enthusiasm will be burst by a weak
consumer sentiment number," said Liz Miller, a fund manager for Trevor Stewart Burton
& Jacobsen Inc., which oversees $750 million. "In the short term, there's more negative
news than positive."
Although economic data will command much of the attention, earnings from a few
market heavyweights will exert some pull. Financial services company American
Express Co. (NYSE:AXP - News) and Kellogg Co.(NYSE:K - News), the No. 1 U.S. cereal
maker, are expected to post quarterly results on Monday, while the earnings of
consumer products maker Procter & Gamble Co. (NYSE:PG - News) are due on
Tuesday. Wednesday will bring results from computer services company Electronic
Data Systems Corp.(NYSE:EDS - News) Report cards from oil and gas companies
ChevronTexaco (NYSE:CVX - News) and Exxon Mobil (NYSE:XOM - News) are expected
on Thursday.
To be sure, stunningly strong profit results could boost investor sentiment and
jumpstart stocks. But investors warn that lukewarm results could hurt more than help.
"Unless we start to see better earnings or better guidance, it'll be tough to break new
ground with stocks," said Gil Knight, who manages $240 million for Allied Investment
Advisors Inc. "Profitability has been hurt and capital spending is still awful. I'm not
seeing stuff to make people happy."
On Friday, the three major U.S. stock indexes finished the third straight week of gains --
the longest such stretch since August. For the week, the Standard & Poor's 500 index
(CBOE:^SPX - News) and the Dow Jones industrial average (CBOT:^DJI - News) gained
1.5 percent, while the Nasdaq composite index (NasdaqSC:^IXIC - News) climbed 3.4
percent.
ECONOMIC DATA AND EARNINGS
One of the week's main economic events occurs on Tuesday, when The Conference
Board, a private research and business promotion organization, presents results from
its survey of 5,000 households. The confidence measure is expected to drop to 89.7
from 93.3 in September.
On Wednesday, the government is scheduled to give its advance estimate of U.S. GDP
growth, which is expected to have risen to 3.7 percent from its second-quarter growth
rate of 1.3 percent.
Friday will bring the government's unemployment reading for October, with the jobless
rate expected to have risen to 5.8 percent from 5.6 percent in September.
"It could be higher than that," Knight said. "Eventually we'll see the unemployment rate
exceeding 6 percent. We're still seeing a lot of layoffs. It means the economy won't be
moving that quickly."
Stocks have rallied in recent weeks as surprisingly strong corporate earnings have
boosted sentiment. So far, 358 companies in the S&P 500 have reported quarterly
results. Of those, 59 percent have beaten Wall Street's lowered expectations by an
average of 3.1 percent, according to market research firm Thomson First Call. About
14 percent have missed analysts' forecasts, First Call said.
But going forward, investors say the better-than-expected results are largely built into
stock prices and they need to see companies forecasting stronger future growth.
"The acceptable results are muted by corporate executives who continue to say the
business environment is challenging and there's no visibility," Miller said. "This is the
quarter they're giving investors hints that they're going to have to take some serious
hits to shore up pensions" in the future.
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