What's ahead for stocks

The jobs report will be the week's big news -- if the oil spill doesn't overwhelm everything. Automakers will report sales Monday. United Air's UAL may acquire Continental Airlines.

By Charley Blaine Apr 30, 2010 9:03PM

Charley BlaineUpdated: 6:15 p.m. ET, May 2

There's no getting around it. Stocks ended the week badly on Friday because of news reports of a criminal probe of financial powerhouse Goldman Sachs (GS) involving its trading of mortgage securities.

Techs were weak. Apple (AAPL) dropped 2.8% on Friday; the decline contributed nearly 25% of the Nasdaq-100 Index's ($NDX.X) 42-point loss on the day. And energy shares were hit, partly due to the worsening BP (BP) oil spill off the Louisiana coast.

The Dow Jones industrials ($INDU) closed down 1.8% for the week but were up 1.4% for the month. The Standard & Poor's 500 Index ($INX) dropped 2.5% for the week, due to weak financial and energy stocks, but up 1.5% for April. The Nasdaq Composite Index ($COMPX) fell 2.7% for the week but ended up 2.6% for the month.

Here's what to look for next week.

Stocks ended the month higher because the economic and earnings reports during the week showed improvement -- even Goldman Sachs, whose earnings doubled from a year ago.

 

And it's likely that the week will begin with a big airline merger: Continental Airlines (CAL) and United Airlines parent UAL (UAUA). News reports suggested most of the week that that UAL will acquire Continental in a $3 billlion deal that will be announced Monday. And talks have been going for weeks.

There are a few reasons to be wary about the week ahead.

Start with the suddenness of the drop-off on Friday. Add in the volatility during the week. The Dow fell for the first time after eight straight weekly gains. The major averages were down at least 1% on three of the five days.

There is an important question about how long financial stocks will be weakened by the Goldman controversy.

The Greek/euro situation may bother again markets again. A downgrade of the debt of Greece and Portugal on Tuesday staggered market. That's why the dollar moved 0.6% against the euro on the week and 1.7% on the month.

Here are two more concerns: The S&P 500 nearly hit 1,220 and then fell back below 1,200. It's not a big thing, only 2.7%, but the resulting chart will make the technically minded yell "ouch."

Then, look at Apple. It closed at $270.83 on April 23 and spent the past week mostly moving lower.

Apple is up 24% for the year. It's selling at 22 times trailing 12-month earnings and 17 times forward 12-month earnings. It's an expensive stock -- the second- or third-most valuable stock in the world, depending on how you measure it. It may also be vulnerable to selling at the first whiff of trouble.
Article continues below.
The Goldman fallout and the oil spill may well overwhelm many things, not the least of which are the economic reports.

Markets for the week



4/30/2010

4/23/2010

% chg.

YTD chg.
Dow industrials

11,008.61

11,204.28

-1.7%

5.6%
S&P 500

1,186.69

1,217.28

-2.5%

6.4%
Nasdaq 

2,461.19

2,530.15

-2.7%

8.5%
Russell 2000

716.60

741.92

-3.4%

14.6%
Crude oil 

$86.15

$85.12

1.21%

8.6%
(per barrel)











U.S. Dollar Index 

81.99

81.50

0.6%

4.8%
10-yr. Treasury

3.66%

3.82%

-4.0%

-4.7%
Gold

$1,180.70

$1,153.70

2.3%

7.7%
(per troy ounce)











(Updated: Sunday, May 2)


Payrolls and unemployment reports are key
The most important report will come Friday when the Labor Department reports on unemployment and nonfarm payrolls.

The national unemployment rate is expected to come in at 9.7% for the month, with nonfarm payrolls rising around 185,000, with maybe 95,000 added in the private sector.

That may not sound like much of a gain, but it is a gain. And it's not so very different from what happened in early 1983 at the end of our last ugly recession.

Here are the others to watch:

Monday
Personal income and spending. These should show some gains, but, as IHS Global Insight noted, job growth will help these measures improve.

Institute for Supply Management's Manufacturing Index.
An important report, this will offer a picture of a strengthening economy. IHS sees the index topping 61, which would be the best performance since 2004.

Construction spending. Look for a glimmer of brightness in spending but deep weakness in commercial construction.

Auto sales. The manufacturers will report April sales throughout the day. The number to watch, ultimately, is the seasonally adjusted annual rate, which is expected at 11.2 million units, up 22% from a year ago but down slightly from March when Toyota Motor (TM) and General Motors in particular were pushing big incentives.

Tuesday
Factory orders. This report may show a small decline, mostly because of smaller orders for aerospace giant Boeing (BA).

Wednesday
ISM Non-Manufacturing Index. This is often called the services index, but it is a broader measure. This is expected to show a gain to 55.9. The biggest driver will be railroad shipments, which have been surging in recent weeks.

Thursday
Productivity for the first quarter. The consensus is for a 2.5% gain, down from 6.9% in the fourth quarter. This should not be a surprise. As IHS noted, "Most of the cost-cutting, which is behind the recent productivity surge, has already taken place. Companies will be adding jobs going forward to meet growing demand."

The earnings may not be so dramatic
Some 1,500 companies will report earnings during the week, including three Dow companies and 95 companies in the S&P 500.

Taken together, these will offer some more evidence that the recovery has begun but is not yet robust. Here's what to look for:

Monday: Andarko Petroleum (APC), Clorox (CLX), Principal Financial (PFG) and Sysco (SYY).

Anadarko is a 25% partner in BP's ill-fated well in the Gulf of Mexico. So its stock is down nearly 16% since the explosion rocked Transocean's (RIG) Deepwater Horizon rig, killing 11 and spilling thousands of barrels of crude into the Gulf of Mexico. The big fear is that this may be the worst U.S. oil spill ever. Nobody is going to talk much about profits.

Sysco is a major distributor of foods and other products to the food-service industry. It is expected to report 41 cents a share in earnings for its fiscal third quarter on expectations that its customers -- restaurants -- are seeing a rebound.

Tuesday: A big day for drug companies. Dow components Merck (MRK) and Pfizer (PFE) report before the open. The companies' shares have struggled this year in large part as investors have tried to figure out how health care reform will affect their businesses.

Also reporting: MasterCard (MA), the credit card processor, oil-services company Baker Hughes (BHI) and outdoor recreation retailer Cabela's (CAB)

Wednesday: Transocean will command the most attention, for obvious reasons.

Also reporting: Anheuser Busch Inbev (BUD), Century Tel (CTL) and the company it's buying, Qwest Communications (Q). And take a listen to Intercontinental Exchange (ICE), which operates futures exchanges in the United States and abroad. If financial reform legislation includes requiring the trading of all derivatives on exchanges, they would probably be a winner.

Thursday: When Dow component Kraft Foods (KFT) reports, it will probably spend some time discussing how its $21.6 billion acquisition of Cadbury (CBY) is coming along. Critics have claimed the company is grossly overpaying for the chocolate maker. Kraft fell 2.1% in April but is up 8.9% for the year.

Also reporting: Crocs (CROX), which is still in business despite constant skepticism that it has enough gravitas to survive;  Playboy Enterprises (PLA), far more troubled, and video-game publisher Activision Blizzard (ATVI). The company recently boosted its fiscal-2010 guidance.

Friday: Utility operator Edison International (EIX), Liberty Media (LINTA) and the Washington Post Co. (WPO). Edison may have some comments about economic conditions in Southern California. The Post may offer some insight on whether there's life in the newspaper advertising market.



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