Eco­nomic data could put stocks back on higher path

The Pak Banker - - MARKETS/SPORTS -

The March US em­ploy­ment re­port and other key eco­nomic num­bers next week could help U.S. stocks re­sume their re­cent win­ning path as long as that data hits the sweet spot: Not strong enough to add to wor­ries about fur­ther in­ter­est rate hikes, yet not weak enough to cause con­cern about a re­ces­sion. Re­ports on the hous­ing mar­ket could also draw in­vestors' at­ten­tion given re­cent sharp gains in home­builder stocks.

Ma­jor in­dexes re­main well above their 2016 lows, thanks to ev­i­dence of a re­viv­ing U.S. econ­omy and a sharp re­bound in oil prices, even as stocks broke a five-week streak of gains on Thurs­day, their last trad­ing day be­fore a long holiday week­end.

While the volatil­ity that marked the start of the year has di­min­ished and many strate­gists have adopted a cau­tiously op­ti­mistic outlook, the mar­ket seems to have paused. A cat­a­lyst could come from corpo- rate earn­ings.

"What we've seen over the past cou­ple of weeks is re­ally just a re­turn to nor­mal," said Brad McMil­lan, chief in­vest­ment of­fi­cer for Com­mon­wealth Fi­nan­cial in Waltham, Mas­sachusetts.

Stocks' next big move will largely de­pend on earn­ings, he said. "We're kind of in a show-me phase, and it's got to be earn­ings." First-quar­ter earn­ings es­ti­mates have col­lapsed since the start of the year, and in some cases may have fallen too far, pos­si­bly set­ting the stage for an up­beat profit sea­son, McMil­lan and other mar­ket watch­ers said. U.S. earn­ings are ex­pected to be down for a third con­sec­u­tive re­port­ing pe­riod, Thom­son Reuters data shows. An­a­lysts now ex­pect a first-quar­ter earn­ings de­cline of 6.9 per­cent - which would be the big­gest drop since the third quar­ter of 2009 - sharply be­low the 2.3-per­cent gain they had been pro­ject­ing as re­cently as Jan. 1. Sta­bi­liz­ing oil prices could at least slow the rate at which fu­ture earn­ings esti- mates fall, McMil­lan said.

Re­cent weak­ness in the U.S. dol­lar could help, as well. U.S. multi­na­tion­als were hit hard by sharp gains in the U.S. dol­lar last year but the dol­lar index .DXY is down 2.6 per­cent so far in the first quar­ter. "We're see­ing the strong dol­lar trade un­wind­ing a bit, and that has helped those beaten-down ar­eas re­ally take off," said Adam Sarhan, chief ex­ec­u­tive of Sarhan Cap­i­tal in New York, re­fer­ring to com­mod­ity-re­lated shares.

Some early re­sults are trick­ling in, but the earn­ings sea­son is still weeks away for the bulk of Stan­dard & Poor's 500 . SPX com­pa­nies. Next week's eco­nomic data could also bol­ster or hurt the mar­ket, de­pend­ing on how it sig­nals the next step for Fed­eral Re­serve pol­icy.

Com­ments from Fed of­fi­cials this week, hint­ing at a slightly more ag­gres­sive rate hike path than in­vestors have been ex­pect­ing, damp­ened some en­thu­si­asm for stocks.

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