The week ahead: All about the economics

There will be lots of talk about of Greece and Spain. Pay more attention to the economic reports coming in the United States, especially the big jobs report Friday.

By Charley Blaine May 25, 2012 8:46PM

Updated: 11:52 p.m. ET Monday

Big question: Did the small gains the stock market saw this past week mark a bottom from the pullback that began in April?

Maybe. And you could become more optimistic by futures trading that suggests stocks will open solidly higher on Tuesday. But some healthy skepticism is in order because the schedule for the week ahead is filled with important economic reports that will tell us a lot about the U.S. and global economies.

The big report for the United States is the jobs report on Friday. Right after the jobs report is the Institute for Supply Management's May manufacturing report. Two important reports on Friday will offer a look at the health of China's economy. Plus, Germany, Britain and the eurozone will report on manufacturing in that region. Ireland votes Thursday on the euro-zone fiscal compact.

The chances there will be a lot of volatility during the week? High. Could be something really bad happen? Probably not yet, even if the Irish reject fiscal authority required by the European Union. The Spanish banking crisis could explode in importance. But the big event will be the Greek election on June 17 and whether that means Greece gives up the euro.

If the numbers come in badly, you can expect lots and lots of talk about QE3. Or a third round of quantitative easing. So, QE has meant the Federal Reserve has bought in Treasury securities in hopes of adding more cash to the economy.

The Fed has absorbed a lot of body punches over its first two rounds of QE. (Yes, it's about as an awful a piece of jargon as one can imagine.)

Critics say it's inflationary and point to rising food prices as proof. Food prices are a function of global forces. There is no labor inflation and certainly no real-estate price inflation, except in a very few markets.

Expect nothing from the Fed unless the economy seizes up.

A nice rally that could be short-lived
The U.S. stock market produced a big rally on Monday and spent the rest of the week trying to hold onto it.

The Dow Jones industrials ($INDU) finished with a 0.7% gain. The Standard & Poor's 500 Index ($INX) gained 1.7%, and the Nasdaq Composite Index ($COMPX) gained 2.1%. The small-cap Russell 2000 Index ($RUT) rose 2.6%. There was strength in housing after better-than-expected reports on existing- and new-home sales.

Apple (AAPL) rose 6% after Dell (DELL) said its notebook business was struggling against tablets like the iPad.

Airlines jumped as crude oil (-CL) fell below $91 a barrel in New York.

And then there was Facebook's (FB) initial public offering that has been a mess. The stock went public at $38, closed a week ago at $38.23 and fell 17.4% this week. Critics blamed everyone -- investment bankers, Facebook, the Nasdaq computer system.

While the rally was modest, it had had been building for some time as many stocks had become oversold since the sell-off began in early April. Investors have worried -- with reason -- that the pull-back is a repeat of 2011, which was a repeat of 2010.

It's not clear that the rally can be sustained. The charts suggest the downtrend from April is still intact. The S&P 500 bounced off 1,150 five times last year before a year-end rally began in early October.

Markets for the week
	5/25/2012	5/18/2012	% chg.	YTD chg.
Dow Industrials	12,454.83	12,369.38	0.69%	1.94%
S&P 500	1,317.82	1,295.22	1.74%	4.79%
Nasdaq	2,837.53	2,778.79	2.11%	8.92%
Russell 2000	766.41	747.21	2.57%	3.44%
Crude oil	$90.86	$91.48	-0.68%	-8.06%
(per barrel)
U.S. Dollar Index	82.52	81.42	1.35%	2.49%
10-yr. Treasury	1.75%	1.70%	2.53%	-6.73%
Gold	$1,568.90	1,591.90	-1.44%	0.13%

A big week for economic data geeks
There are three big U.S. economic reports:

Jobs and unemployment for April. This is the big one and will be issued at 8:30 a.m. ET on Friday. The consensus estimates are for the national unemployment rate to hold at 8.1%. Payrolls may rise by 150,000. IHS Global Insight sees payrolls rising by 165,000, arguing that April's gain of 115,000 new jobs understated the recovery's strength.

Institute for Supply Management's May manufacturing index. This also is due Friday. And the consensus is for the index to slip to 54 from 54.8 in April. This is not a bad number. A reading above 50 means means the economy is still growing.

Gross Domestic Product, due Thursday morning. This is a revision of the first-quarter estimate. Domestic grown is supposed to slip to a 1.9% annual rate, compared with an original estimate to 1.9%. It's not a great number, but the British are going back into recession, and other economies are weakening.

Also due next week:

Standard & Poor's Case-Schiller Home-Price Index, due Tuesday. look for smaller price declines in 20 big markets.

The Conference Board's May Consumer Confidence report, due Tuesday. Lower gasoline prices should help.

Jobless claims, due Thursday. Look for a number around 370,000

Auto sales for May, due Friday. Edmunds.com is expecting sales overall of about 1.4 million units, with a seasonally adjusted annual rate of 14.4 million units. Toyota's (TM) numbers should be strong as it recovers from the March 2011 earthquake and tsunami in Japan.

The big international reports to watch are two reports on manufacturing trends in China and manufacturing indexes for Germany, Italy and the European Union. All come on Friday -- before the U.S. reports.

Earnings are modest
The first-quarter earnings season is largely done. Because of the short week, there are very few market moves.

The biggest may well be Bank of Nova Scotia (BNS) on Tuesday and Joy Global (JOY) on Thursday. Joy Global makes mining equipment, especially for the coal industry. It's affected by what happens in China and what happens to natural gas. The stock is off 40% in the last. year.

Earnings grew 8.1% in the second quarter, but Apple distorts matters, according to Thomson Reuters. Take it out, and the growth rate falls to 5.8%. Of 489 S&P 500 companies that have reported results, 67% have beat Street estimates. That's better than the long-term average of 62% but lower than the 68% beat rate of the prior four quarters.

The second-quarter season may not be so robust. Thomson Reuters sees 7.4% growth rate over 2011. But financial stocks will show the best results. Taking them out will cut the growth rate to 0.3%.