More Data, More Falling Stocks Loom
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Sunday September 9 11:53 AM ET
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The Stock Market
By Haitham Haddadin
NEW YORK (Reuters) - Don't expect the clouds over Wall Street to lift this week, when stocks are likely to slide further from the almost three-year lows that the broad Standard & Poor's 500 index (^SPX - news) hit at the end of Friday's session.
The Street will pick apart a slew of economic reports for clues on when the world's largest economy might start springing back from its sluggishness, with focus on the government's report on Friday on August producer prices.
Also expected on Friday are: August retail sales, industrial production and capacity utilization, and consumer sentiment.
The numbers will take on more importance after a grim employment report last Friday put the U.S. jobless rate at a four-year high, prompting a steep sell-off in stocks.
``This week can be a climactic week for the market, in terms of the indexes breaking down substantially, and pessimism building as it did in late March and early April,'' said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum.
Investors will also stay on guard for the next corporate earnings bombshell, as the so-called ``pre-announcement'' season heats up this week, before going into high gear next week.
``The market is going to have to deal with companies continuing to talk down earnings for the rest of the year,'' said Henry Herrmann, chief investment officer of Kansas-based Waddell & Reed, which manages about $32 billion.
``It's going to continue to be a struggle.''
KEY DATA: RETAIL SALES, PPI (news - web sites), CONSUMER SENTIMENT
The mood darkened on Wall Street when stocks tumbled on Friday, capping a dismal week, after the jump in the jobless rate blindsided investors already reeling from a steady diet of poor corporate earnings. The Labor Department (news - web sites) said the unemployment rate rose to 4.9 percent in August from 4.5 percent in July as companies slashed 113,000 workers from their payrolls.
The anxiety over the jump in the jobless rate will carry over to this Friday, when August retail sales figures and the Producer Price Index (news - web sites) are due before the market's open.
The retail sales report will indicate whether American consumers -- whose spending accounts for two-thirds of the U.S. economy -- continue to keep their wallets open.
With those wallets fattened recently by tax-rebate checks, pundits say people may have kept on spending last month. Economists polled by Reuters expect a rise of 0.3 percent in August sales from a flat reading for the previous month.
The Producer Price Index, a measure of wholesale inflation, is expected to have risen 0.2 percent in August from July, while the core PPI, which excludes volatile food and energy prices, is forecast at up 0.1 percent, according to economists polled by Reuters.
Investors will closely watch consumer confidence, to see if it has been dented by all the doom and gloom of layoffs.
The University of Michigan will issue its reading on August consumer sentiment on Friday morning, after stock trading has been under way for about a half hour. Economists expect that gauge to fall to 90.8 from 91.50.
``The sentiment number has the possibility of being upsetting to the market, if it were to be weak,'' Herrmann said.
``Everybody, even the Federal Reserve (news - web sites), is very concerned how the consumer is going to be doing,'' he said. ``Everybody has got their fingers crossed,'' hoping ``the consumer holds up. If this sentiment indicator shows there's deterioration in the outlook, they will be worried that the consumer is going to weaken.''
August industrial production and capacity utilization will be reported Friday before the regular trading session starts.
FEAR RULES THE STREET
Fear ran rampant down Wall Street last Friday, when the S&P 500 sank 20.62 points, or 1.86 percent, to finish at 1,085.78 -- its lowest close in almost three years. The S&P 500's previous closing low for 2001 was 1,117.58, set on March 22.
The blue-chip Dow Jones industrial average (^DJI - news) sank 234.99 points, or 2.39 percent, to 9,605.85. The tech-laden Nasdaq Composite Index (^IXIC - news) fell 17.94 points, or 1.05 percent, to 1,687.70, within sight of its 2-1/2-year low of 1,638.80 set on April 4. The Dow also stands close to its March 22 closing low of 9,389.48.
``The great fear is that we will break those earlier lows,'' said Michael Farr, president of Farr, Miller & Washington, which manages about $375 million. ``The trend is negative and doesn't bode well for a bounce. Yet I think this market has been unpredictable enough to know that we have reason to be hopeful. But certainly we need to be prepared for the worst.''
Companies in the S&P 500 index are expected to report earnings fell 14.3 percent in the third quarter from a year ago, according to market tracker Thomson Financial/First Call.
Last week wireless technology giant Motorola Inc. (NYSE:MOT - news) warned of yet another sales shortfall and 2,000 more job cuts, while Intel Corp. (Nasdaq:INTC - news), the world's top computer chip maker, said its third-quarter revenues will be at the lower end of a range it set in July. Intel cited slower PC sales.
``Investors are waking up to the fact that without profits, (stock) valuations look very high,'' said Tony Rosenthal, portfolio manager with TimesSquare Capital Management, which oversees about $2 billion in assets.
``Investors have lost a lot of money this year and they are scared. There's fear and greed in these markets and they are dominated by a lot of fear right now,'' Rosenthal said, adding investors are waiting for something more concrete than announcements that things are not getting much worse.
The market indexes likely will test the spring lows as the path of least resistance stays on the downside, he said.
But he added some stocks are coming into very attractive territory.
Others went a step further, saying the recent battering could prompt a rally in the near term.
``I think we are actually getting fairly close to a pretty significant interim rally, one that may last for a couple of months,'' James Oberweis, portfolio manager of Oberweis Asset Management, said. ``That could be within one or two weeks''.
Yet stocks' valuations in general are still high and could leave the upside limited somewhat, Oberweis said.
``I don't think we're going to start a new bull market until earnings begin to look significantly better than they are right now,'' he said. |
