Wall St Week Ahead - Data to test rally's mettle
Sunday June 1, 11:01 am ET
By Elizabeth Lazarowitz
(Repeating column that initially ran late Friday)
NEW YORK, June 1 (Reuters) - Investors banking on an economic rebound sometime in the year ahead have hungrily snapped up stocks in recent months, but this week's economic data could test their faith.
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The broad Standard & Poor's 500 index (CBOE:^SPX - News) has sprinted about 20 percent higher since it hit its 2003 low in mid-March, powering upward amid only sporadic signs so far that ailing U.S. growth and corporate profits are on the mend.
This week, investors will look to reports on the U.S. manufacturing and services sectors, as well as factory orders, productivity and the government's monthly employment report to get a sense of how the economy is actually faring.
"People are trying to find any glimmer of a pickup in the economy," said John Forelli, portfolio manager at Independence Investments LLC. "We need economic confirmation that the recovery is here and we haven't seen that yet. We've just seen speculation."
Speculation has been enough for investors hoping the economy, freed from the shadow of the war in Iraq and bolstered by extremely low interest rates and a $350 billion tax cut package, will return to health.
The S&P 500 stormed to its highest close since last July on Friday, while the blue chip Dow Jones Industrial Average (CBOT:^DJI - News) rose to its highest finish so far this year. Both indexes racked up a third straight month of gains in May, their first such streak in about a year and a half.
The technology-packed Nasdaq Composite Index (NasdaqSC:^IXIC - News) ended at its highest level in about a year on Friday. It also notched a fourth straight month of gains, a feat it had not accomplished since the autumn of 1999, according to market tracking company Markethistory.com.
For the year, the Dow is up 6.1 percent, the S&P 500 is up 9.5 percent and the Nasdaq is up 19.5 percent.
Given the market's heady gains, investors may pause to question whether stocks may have run too far, too fast.
"We're going through this emotional battle between fear and greed," said Charles White, president of investment firm Avatar Associates. "Investors are weighing watching this rally and wanting to jump in against fear that they're buying at the top."
Nevertheless, market sentiment remains upbeat and investors are quick to focus on the bright spots in the economic data, analysts said.
"There are a lot of portfolio managers out there who have been skeptical and who have been sitting on the sidelines and are waiting for any type of pullback to put some money into the market," said Jon Brorson, managing director of growth equities at Neuberger Berman.
MANUFACTURING, JOBS IN FOCUS
Results are due from a few technology companies, including communications software maker Comverse Technology Inc. (NasdaqNM:CMVT - News), electronic chips maker National Semiconductor Corp. (NYSE:NSM - News) and contract electronics manufacturer Flextronics International Ltd. (NasdaqNM:FLEX - News).
Albertson's Inc. (NYSE:ABS - News), one of the nation's top grocers, regional supermarket chain Pathmark Stores Inc. (NasdaqNM:PTMK - News), Smithfield Foods Inc. (NYSE:SFD - News), a top U.S. pork and hog producer, and upscale retailer Neiman Marcus Group Inc. (NYSE:NMGa - News) will all issue their quarterly scorecards.
But with the light earnings calendar this week, investors will be listening for mid-quarter updates from Altera Corp. (NasdaqNM:ALTR - News), a maker of programmable semiconductors, and Intel Corp. (NasdaqNM:INTC - News), the world's largest computer chip maker.
The week's economic data, however, will likely steal the spotlight, offering key glimpses at the economy in the wake of the Iraq war. For now, investors may be willing to forgive anything but the most devastating economic news, analysts said.
The Institute for Supply Management's survey on U.S. manufacturing activity, due Monday, is expected to show a rise to 48.6 in May from 45.4 in the prior month, according to economists in a Reuters survey.
The government's monthly payrolls report, due on Friday, is expected to show the economy lost 39,000 jobs in May, while the unemployment rate ticked up to 6.1 percent, from 6.0 percent in April.
(Wall St Week Ahead appears weekly. Comments or questions on this one can be e-mailed to elizabeth.lazarowitz(at)reuters.com.) |
