Af­ter grim pay­rolls re­port, fo­cus now turns to econ­omy

Jerusalem Post - - BUSINESS & FINANCE - WALL STREET WEEK AHEAD • By CARO­LINE VALETKEVITCH (Lu­cas Jack­son/Reuters)

NEW YORK (Reuters) – With a June Fed­eral Re­serve in­ter­est-rate hike likely off the ta­ble fol­low­ing Fri­day’s dis­mal jobs data, US eq­uity in­vestors may shift their fo­cus again to whether the econ­omy is los­ing too much steam to al­low stocks to ad­vance.

In­vestors will comb eco­nomic data over the next few weeks to see if the weak pay­rolls re­port re­flected a wider trend in the US econ­omy or was an out­lier. A first hint of the cen­tral bank’s view of that could come Mon­day with a speech on the eco­nomic out­look by Fed Chair­woman Janet Yellen.

The fresh eco­nomic wor­ries could help keep the mar­ket mired be­low record highs reached in May 2015, even though the Stan­dard & Poor’s 500 in­dex notched a third straight month of gains this May, and most sec­tors are up since the start of the year.

“The broader ques­tion is whether the econ­omy is gain­ing the kind of mo­men­tum and trac­tion that we need for a mar­ket that has been look­ing to­ward new highs,” said Quincy Krosby, a mar­ket strate­gist at Pru­den­tial Fi­nan­cial in Ne­wark, New Jersey.

“No one is out to sug­gest the econ­omy is do­ing a ma­jor turn­around be­cause of this num­ber,” she said. “But we now need to see a clutch of data that sug­gests that this is a one-off.”

It may take a few weeks to get a bet­ter pic­ture of the eco­nomic out­look, with the eco­nomic and earn­ings cal­en­dars light for this week. The Fed meets next week, which will also bring data on re­tail sales and pro­ducer prices.

Wall Street’s top banks now unan­i­mously ex­pect the Fed to leave in­ter­est rates un­changed this month, a Reuters poll showed on Fri­day.

While in­vestors and com­pany ex­ec­u­tives have wor­ried that higher rates will dampen spend­ing, a weak econ­omy now is con­sid­ered a big­ger risk for the mar­ket.

S&P 500 earn­ings, which fell 5 per­cent in the first quar­ter from a year ago in their third straight quar­terly de­cline, are still ex­pected to pick up in the sec­ond half of the year.

“I’m start­ing to get wor­ried that the third- and fourth-quar­ter num­bers are not go­ing to come to fruition, said Daniel Mor­gan, a se­nior port­fo­lio man­ager at Synovus Trust Com­pany in At­lanta. “How to do you sub­stan­ti­ate the mar­ket where it is, based on cur­rent mul­ti­ples?”

The S&P 500 is trad­ing at 17.1 times for­ward earn­ings, ac­cord­ing to Thom­son Reuters data.

Spec­u­la­tion over the out­come of Bri­tain’s pend­ing vote on re­main­ing in the Euro­pean Union could also rat­tle the re­solve of stock in­vestors.

The Bri­tish elec­torate’s vote on the change, which many in­vestors say would be a neg­a­tive for global mar­kets, comes a week af­ter the Fed’s June pol­icy meet­ing. It also adds to the like­li­hood the US cen­tral bank will leave rates un­changed in June.

While signs of slower growth are a neg­a­tive over­all for the mar­ket, de­fen­sive sec­tors, along with div­i­dend-pay­ing stocks, could con­tinue to ben­e­fit from in­creased in­vestor cau­tion. Util­i­ties and telecom­mu­ni­ca­tions both have dou­ble-digit gains for the year so far.

TRADERS WORK on the floor of the New York Stock Ex­change last week. In­vestors will comb eco­nomic data over the next few weeks to see if the weak pay­rolls re­port re­flected a wider trend in the US econ­omy or was an out­lier. A first hint of the cen­tral bank’s view of that could come to­day with a speech on the eco­nomic out­look by Fed Chair­woman Janet Yellen.

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