What's ahead for the stock market

The economy -- jobs, auto sales, factory orders -- will command the market's attention. Europe and the effects of the oil spill will, too.

By Charley Blaine May 28, 2010 7:38PM
Charley BlaineForget about Europe and the euro after the market reopens on Tuesday after Memorial Day. Concentrate on the economy because it will be the coming week's story.

That's because the economic reports will move markets, especially Friday's big jobs and unemployment report.

There will be some corporate earnings reports, but only two -- homebuilder Hovnanian (HOV) on Wednesday, mining-equipment maker Joy Global (JOYG) on Thursday -- have the potential to move the stock market up or down.

This past week was enough to give an investor motion sickness. The major indexes fell badly on Monday, annoyingly on Tuesday and Wednesday, rallied strongly on Thursday and slumped in the last half-hour on Friday. The Dow Jones industrials ($INDU) fell 122 points for the day.

May, in fact, was simply terrible. The Dow fell 7.9% for the month, and the Standard & Poor's 500 Index ($INX) dropped 8.2%, their worst losses since February 2009. The Nasdaq Composite Index's($COMPX) 8.3% loss was its worst monthly performance since November 2008.

And it was the worst May for the Dow since 1940 -- 1962 for the S&P 500 and 2000 for the Nasdaq.

Article continues below.
About the only good news for consumers was that interest rates fell. The 10-year Treasury yield ended the week at 3.3%, down from 3.38% on Thursday and 3.66% on April 30.

Gasoline prices are lower as oil has fallen below $74. AAA's Fuel Gauge Report said the national average price of gasoline was $2.749 a gallon on Friday, down 18 cents from a high of $2.929 a gallon on May 7. 

Markets for the week



5/28/2010

5/21/2010

% chg.

YTD chg.
Dow industrials

10,136.63

10,193.39

-0.6%

-2.8%
S&P 500

1,089.41

1,087.69

0.2%

-2.3%
Nasdaq 

2,257.04

2,229.04

1.3%

-0.5%
Russell 2000

661.61

649.29

1.9%

5.8%
Crude oil 

$73.97

$70.04

5.6%

-6.8%
(per barrel)











U.S. Dollar Index 

86.58

85.54

1.2%

10.7%
10-yr. Treasury

3.30%

3.44%

-4.1%

-14.1%
Gold

$1,212.20

$1,176.10

3.1%

10.6%
(per troy ounce)












Does it mean the great rally since March 2009 is about to crash?

It depends on whether you believe the European debt crisis will sink the world economy.

Microsoft (MSFT) shares slumped this week after CEO Steve Ballmer said the problems in the eurozone may not be limited to that region because the world economy is interconnected. (Microsoft publishes MSN Money.)

"I think we all do understand that the world economy is very linked and everybody is nervous that any problems that we might see in Greece (and) Europe will not be isolated in Europe," he told an audience in Singapore.

Microsoft's shares fell 3.9% while Apple (AAPL) shares rose 6%, and Apple passed Microsoft to become the second-most-valuable U.S. company, behind onlyExxon Mobil (XOM), measured by market capitalization.

Worries about Europe hit the market on Friday when Fitch Ratings  downgraded Spanish debt.

The downgrade came after European markets closed on Friday and could roil Asian and European markets on Monday, while U.S. traders enjoy the holiday.

And perhaps one should pay more than a little attention to the rising tensions between North and South Korea. A North Korean general denied on Friday that his country sank a South Korean gunboat in March. Then, he warned about all-out war.

But the coming week will really be about the economic reports that come out. If the reports are better than expected, you can reasonably assume that stocks will move higher. So will crude oil, copper, silver and probably gold.

If the reports aren't as strong as hoped, there will be more gnashing of teeth. And a lot of talk about how low the market will fall.

Here's a rundown of what to look for:

The Institute of Supply Management's manufacturing index for May, due Tuesday. The consensus estimate for this closely watched report is for the index to come in at 59; 50 means manufacturing is growing. There may be some tail-off from a reading of 60.4 in March, but no one sees a big decline.

Construction spending for April, due Tuesday. Commercial and multifamily construction will be quite weak. Single-family construction will be strong because of the homebuyer tax credits. With the credits' expiration in April, this strength will tail off in the next few months.

Auto sales for May, due Wednesday. IHS Global Insight sees May sales hitting an annualized rate of 11.3 million units. Market research firm Edmunds.com is more optimistic, estimating 11.4 million units. Ford Motor's George Pipas told The Wall Street Journal on Friday that he's forecasting an 11.2-million-unit rate.

Not fantastic numbers but definitely stable. End-of-month incentives in May should drive the results.

Pending home sales for April, due Wednesday. This report from the National Association of Realtors is watched because it tries to measure sale contracts signed. This will show a big gain because of the tax credits but may offer some idea of what will happen next.

First-quarter productivity, due Thursday. This is a revision of earlier reports, and many economists believe it will be revised downward.

Institute of Supply Management's Non-Manufacturing Index for May, due Thursday. This measures all sorts of things, including freight shipments. Railroad traffic is running something like 12% higher than a year ago, although it's still behind 2008 levels. The consensus estimate is that the index reading will be 55.7 (again, 50 means growth). IHS Global Insight sees 55. One drag: the stock market correction.

Nonfarm payrolls and unemployment, due Friday from the Labor Department. The consensus estimate is that the unemployment rate drops slightly to 9.8% from 9.9% in April. Others, like IHS, are going with 9.7%. Payrolls may grow perhaps as many as 505,000, up from 290,000 in April. The important number to watch is private-sector employment because the Commerce Department has hired more than 300,000 people to help with the 2010 census.

Why Hovnanian and Joy Global could move markets
Hovnanian is a big builder of luxury homes. Its sales (along with those of every other builder) collapsed in the housing bust.

The company lost $1.50 a share in the second quarter of fiscal 2009 as sales fell nearly 49% to $398 million. The analyst consensus is for a loss of 64 cents for the second fiscal quarter and revenue of $352 million.

Results should be boosted by the now-expired homebuyer tax credits. It's the outlook that's important. A number of builders say they're seeing orders coming in later this year.

The company has downplayed hints of a turnaround. What it says about the next few quarters will be important. The stock is up 61% this year. It has consistently found support at its 50-day moving average.

Joy Global makes mining equipment and has close ties to the coal industry. Its products are sold around the world. So, like Caterpillar (CAT), it is uniquely positioned to see how the financial turmoil in Europe in the past few months will affect U.S. business.

The stock peaked on April 15 at $63.45 and has fallen nearly 20% since. But its $51 close on Friday was above its 200-day moving average and a 4.6% gain for the week.

If the company is particularly gloomy about international markets, you could see an impact on U.S. stocks.

Apple could move markets as well, depending on how sales for its iPad mobile device do in Canada, Europe and Japan. Really strong sales should boost semiconductor stocks, especially Broadcom (BRCM), Micron Technologies (MU), SanDisk (SNDK) and Samsung.

Three key numbers to watch
Keep an eye on three numbers with the S&P 500:

The first is 1,090, which triggered selling on Tuesday and Wednesday. Thursday, the index closed at 1,103, well above 1,090. So, on Friday, it became a support level, triggering buying. The index closed Friday at 1,089. So it's not clear where it's headed next.

The second level is 1,040, which is where the S&P 500 bottomed in February. A fall below 1,040 could set off more selling.

The last is 1,217, the closing high for the index on April 23. If there is a rally, it may lose steam the closer the S&P 500 gets to 1,217.

We are not alone
A quick reminder that the declines for U.S. stocks since peaking in April have been mirrored in markets around the world.

The strongest markets have been Germany and India. China has suffered the most.

How the indexes have changed since the April highs



Today

Chg. since April high 
U.S. indexes





Dow Jones industrials

10,136.63

-9.54%
S&P 500

1,089.41

-10.50%
Nasdaq Composite

2,257.04

-10.79%
Nasdaq-100 

1,852.39

-9.87%
Russell 2000  

661.61

-10.82%
S&P Midcap 400 

762.76

-10.24%
Non-U.S. indexes





Nikkei 225 (Japan)

9,762.98

-13.90%
FTSE 100 (Britain)

5,188.43

-10.93%
Dax Index (Germany)

5,946.18

-6.09%
Shanghai Composite (China)* 

2,655.77

-20.45%
Bombay Sensex (Bombay)

16,863.06

-4.97%
Bovespa Index (Brazil)

61,946.99

-13.70%
Hang Seng Index (Hong Kong)

19,766.71

-10.99%
IBEX Index (Spain)**

9,425.50

-22.88%
* Since Nov. 23, 2009. ** Since Jan. 6, 2010.


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