What's ahead for the stock market

The big question is whether the volatility is over. Reports are due on housing, personal income and durable-goods orders. Costco and Canada's big banks will report.

By Charley Blaine May 21, 2010 9:23PM

Charley BlaineUpdated: 11:30 p.m. ET May 21

 

That was some finish on Friday. Stocks jumped up and down all day long and looked to end the day lower. And then, miraculously, powerful buying came in.

 

To the likely astonishment of most everyone watching, the Dow Industrials ($INDU) ended the day up 125 points to 10,193. That was a great finish -- not just because of its size but also because it came after Thursday's big 376-point rout and after the index had just given up a 129-point gain earlier in the day.


If you're a new investor, the finish may not be a buy signal. It is definitely a signal that watching the market going forward is a potentially profitable idea.

 

You want to know if the market has started to bottom, and, even if Apple (AAPL) finished the day up 2% to $242.92, that's not a confirmation of a bottom.

 

The next week is likely to be fairly volatile, if only because the past week was. Europe's problems will weigh on stocks. So will the U.S. housing market. And how the market reacts to both issues will tell us more about the bottom we're searching for.

 

Article continues below

Not only did the Dow end up 125 points Friday, but the Standard & Poor's 500 Index ($INX) rose 16 points to 1,088, and the Nasdaq Composite Index ($COMPX) was up 25 points to 2,229.

But a correction has set in that has pushed the Dow down 9% since its April high. The S&P 500 has fallen 10.7% since its April 23 closing high; the Nasdaq is off 11.9% from its April high.

 

The correction, however, has pushed interest rates lower, as many investors have sought safety in U.S. bonds. The 10-year Treasury yield finished the week at 3.2% -- the lowest yield since Oct. 7, 2009, and great for anyone looking to buy a house.

 

Bankrate.com said Friday the national 30-year fixed-rate mortgage was 4.9%, down from 4.99% a week ago.

 

It's also knocked crude oil down 20% in a month and brought the national average pump price of gasoline to $2.83 a gallon, according to AAA's Fuel Gauge report Friday. The average was $2.93 on May 6.

 

The market's pullback shouldn't be a surprise. The rally that began in March 2009 and peaked last month pushed the Dow up 71% and the Nasdaq nearly 100% -- gains that were so big and came so fast that a sell-off became inevitable. All the market needed to tip over was a catalyst -- such as Greece and its debt problems and their effect on the euro.


Markets for the week



5/21/2010

5/14/2010

% chg.

YTD chg.
Dow industrials

10,193.39

10,620.16

-4.0%

-2.3%
S&P 500

1,087.69

1,135.68

-4.2%

-2.5%
Nasdaq 

2,229.04

2,346.85

-5.0%

-1.8%
Russell 2000

649.29

693.98

-6.4%

3.8%
Crude oil 

$70.04

$71.61

-2.2%

-11.7%
(per barrel)











U.S. Dollar Index 

85.64

86.23

-0.7%

9.5%
10-yr. Treasury

3.20%

3.44%

-7.0%

-16.7%
Gold

$1,176.10

$1,227.80

-4.2%

7.3%
(per troy ounce)












European weakness will weigh on markets

Greece and Europe will continue to be an issue next week, if only because managers of a lot of very hot money are watching them closely. The risks to the U.S. economy and stocks are that a falling euro will cut the value of profits earned on the revenue companies generate in Europe.


A falling euro hits prices of commodities sold in dollars, especially oil, because it means that buyers must pay more for their oil. And that means they must cut back on something else. That's why crude oil fell below $70 this week and is off 18.7% this month alone.


Housing re-emerges

Nobody talked much about housing this past week, although there were reports of record delinquency and foreclosure rates.


Housing will be a topic of discussion starting Monday when the National Association of Realtors releases its report on April existing-home sales and Standard & Poor's issues its S&P/Case Shiller  report on prices in 20 markets. 


The Realtors are expected to report sales at an annualized rate of 5.5 million to 5.6 million units. You can expect the number to drop for several months because many sales were generated by the first-time and existing-home buyer tax credits, which expired April 30.


The S&P/Case Shiller index has been showing slow gains for several months.


On Wednesday, a Commerce Department report on new-home sales will probably show a big decline, again because of the tax credits. You had to sign a contract to buy a home by April 30 and close by June 30. It's hard to build a home in two months. IHS Global Insight expects sales to drop to an annualized rate of 370,000 units and stay there for a while.


Toward the fall, when a recovering economy is expected to start generating more jobs, existing- and new-home sales should start to gain.


Durable-goods orders and personal income

If you want stocks to rally again, these are the key reports. Durable-goods orders, due Wednesday, are expected to rise 3.5%, thanks to a rebound in aircraft orders. Boeing (BA), in fact, said this week its production calendar is basically full through 2012.


Manufacturing is having a strong year, IHS notes.


Shipments for core capital goods (nondefense capital goods excluding aircraft) increased an annualized 11.6% in the first quarter (revised up from 8.3%), while shipments were revised up from an annualized 14.0% to 17.6%.


The Commerce Department is expected to report on Friday that personal income grew between 0.3% and 0.5% in April, thanks to job gains during the month. Spending may not change. If the numbers are stronger than expected, the market will cheer.


Thursday specials: Watch GDP and initial claims

On Thursday, the Commerce Department will report its first revision of its estimate for first-quarter economic growth.


The initial estimate was a 3.2% annual gain. IHS sees it being revised to 3.5% because stronger exports, durable equipment spending and personal spending.


Separately, the Labor Department will issue its weekly report on initial jobless claims. This past week's report was a big disappointment and was one reason for the Dow's 376-point plunge.


Earnings reports: Costco and the Canadians

The bulk of the first-quarter earnings reports have been issued, and they have been better than analysts had expected. 


About 78% of S&P 500 companies beat estimates, according to Thomson Reuters, and the blended earnings growth rate for the companies is expected to come in at 57%.


Financial, technology, materials, consumer discretionary and energy companies have shown the biggest gains.


The gains have suggested  a stronger-than-expected economic recovery.


The week includes report from some of Canada's biggest banks, including Bank of Montreal (BMO) on Wednesday, Toronto Dominion Bank (TD), Royal Bank of Canada (RY), National Bank of Canada (NTIOF) and Canadian Imperial Bank of Commerce (CM) on Thursday.

None of the Canadian banks experienced the depths of problems that plagued American banks. So, the declines of the Canadians' stock prices from 2007 to their lows in 2009 weren't as great. But as a group, they're closer to recovering all of their declines than the Americans.

Costco Wholesale (COST) is probably the best-known company reporting next week. Before Wednesday's open, Costco is expected to report 66 cents a share in earnings on sales of $17.6 billion, up from 52 cents a share in earnings on revenue of $15.8 billion.

The stock has been relatively stable in the correction and is down 2.9% for the year. Here are some key reports also due in the week ahead:

Monday: Phillips-Van Heusen (PVH)

Tuesday: Autozone (AZO); Cracker Barrel (CRBL), Sanderson Farms (SAFM) and medical-equipment maker Medtronic (MDT). Medtronic's estimates of the costs of health care reform will command attention.

Wednesday: American Eagle Outfitters (AEO); Jo-Ann Stores (JAS), networking maker NetApp (NTAP) and homebuilder Toll Bros. (TOL).

Thursday: Big Lots (BIG), Borders (BGP) and H.J. Heinz (HNJ).

 

Friday:Mentor Graphics (MENT).

 

 

 

 

 

 

 

 

 

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[BRIEFING.COM] The stock market ended the Tuesday session on a lower note after generally upbeat earnings took the back seat to geopolitical concerns. The S&P 500 (-0.5%) and Nasdaq Composite (-0.1%) ended on their lows, while the Russell 2000 (+0.3%) displayed relative strength.

Once again, market participants were focused on quarterly reports in the early going, but geopolitical worries overshadowed the impact of mostly better than expected earnings. Specifically, equities ... More


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