An often forgotten fact of market dynamics is that it leads economic activity. The market is a vast discounting factor, seeking to adjust and anticipate the future with each new bit of arriving information. So yesterday's news was in fact also figuratively yesterday's news. Thus, the Dow Industrials rose 3.2%, the S&P 500 Index climbed 4.2% and the Nasdaq soared 4.9%. This all occurred while the job market posted its third consecutive month of erosion (-80K jobs) and unemployment increased to 5.1%.
A RevelationBen Bernanke came clean this past week, admitting the economy might be in store for economic "contraction." Little by little, the federal government is working its way toward admitting the truth. But, in putting off reference to the "R" word, we are sure the government believes it is protecting Americans from self-fulfilled prophecy. It seems George Bush and crew believes we can’t handle the truth, which would be that recession is likely.
The Week AheadAn interesting mix of economic data is set for release this week, but the market seems capable of handling anything at this point.
MondayEntering recession's gate, and with unemployment rising and consumer stresses intense, there’s widespread concern about the consumer credit situation. On Monday, the monthly change in consumer credit will offer some insight into just that. Perhaps a sign of tightening lending standards, or borrowers’ limited-out status, consumer credit is only seen increasing by $5.3 billion in February, compared to a rise of $6.9 billion in January.
On the international scene, the OECD is expected to issue an economic survey on Japan. Also, the Treasury Secretary will address a group in Miami, and the wire might repeat an important line or two from sunny Florida.
Earnings season official kicks off this week with the report of Alcoa (
NYSE: AA) on Monday. The remainder of the day’s schedule includes China Petroleum & Chemical (
NYSE: SNP), China Telecom (
NYSE: CHA), Gold Reserve (
AMEX: GRZ), MTR Gaming Group (
Nasdaq: MNTG), Peoples Educational Holdings (
Nasdaq: PEDH), SCBT Financial (
Nasdaq: SCBT) and WidePoint (
AMEX: WYY).
TuesdayWe will be closely attuned to the weekly same-store sales report from the International Council of Shopping Centers, since last week’s report showed growth of just 0.5%, year-to-year. That marked a drop in growth rate from the week before level of 1.0%. The rate of change has been notable, and may portend a pending decrease in year-over-year sales, which makes perfect sense in economic "
contraction."
The Federal Open Market Committee will release its meeting minutes from its March get together, through which it cut the fed funds rate by 75 basis points. There were a whole lot of other important actions the Fed took that same week, and since, so the minutes should make for interesting reading, if not a good cure for insomnia.
The Pending Home Sales Index for February is scheduled for release, and Barron's wrote that expectations point toward a decrease of 1% or so. Keeping with housing, the Senate will hold a procedural vote on a housing bill Tuesday. While watching Washington, you'll likely catch wind of General Petraeus' testimony to Congress on Iraq.
Tuesday's earnings reports include Layne Christensen (
Nasdaq: LAYN), Sealy (
NYSE: ZZ), Affirmative Insurance Holdings (
Nasdaq: AFFM), Angelica Corp. (
NYSE: AGL), APT Satellite Holdings (
NYSE: ATS), Century Bancorp A (
Nasdaq: CNBKA), Chattem Inc. (
Nasdaq: CHTT), Mitcham Industries (
Nasdaq: MIND), MSC Industrial Direct (
NYSE: MSM), Sinopec Shanghai Petrochemical (
NYSE: SHI) and Suffolk Bancorp (
Nasdaq: SUBK).
WednesdayThe Mortgage Bankers Association reports its regular take on mortgage activity. Originations backed up last week, after the prior week's significant increase. Mortgages could benefit again in the current reporting period, because of the government's increasing of the limits on conforming loans.
Wholesale inventories will be reported against expectations for a 0.5% increase in February. The result will compare against a rise of 0.8% in January. The Fed goes on parade again this week, with Ben Bernanke addressing one group and rate-cut dissenter Richard Fisher meeting another.
The House Financial Services Committee will be busy with legislation related to mortgages, housing and the economy. In Asia, the Bank of Japan is expected to keep rates steady. Finally, the EIA publishes its regular Petroleum Status Report, and it matters now.
Wednesday's corporate earning schedule includes Bed, Bath & Beyond (
Nasdaq: BBBY), Circuit City (
NYSE: CC), Acergy S.A. (
Nasdaq: ACGY), Apogee Enterprises (
Nasdaq: APOG), Celebrate Express (
Nasdaq: BDAY), Christopher & Banks (
NYSE: CBK), Innotrac (
Nasdaq: INOC), International Speedway (
Nasdaq: ISCA), Kayne Anderson Energ (
NYSE: KED), Mercantile Bank (
Nasdaq: MBWM), Merix (
Nasdaq: MERX), Northfield Labs (
Nasdaq: NFLD), Penford (
Nasdaq: PENX), Richardson Electronics (
Nasdaq: RELL), Shaw Group (
NYSE: SGR), Signet Group (
NYSE: SIG), Greenbrier Cos. (
NYSE: GBX), The Progressive Corp. (
NYSE: PGR) and WD-40 (
Nasdaq: WDFC).
ThursdayRetailers will begin reporting monthly chain store sales for March on Thursday, providing an opportunity for retailers to adjust their earnings guidance for the analyst community. Thus, you may see retail shares decline in the week ahead, as all indications are that recent sales have tailed off.
For those of you concerned about the euro/dollar exchange rate, an event this week should play a key role in the direction of the currencies. The European Central Bank is set to meet, after which it will announce its latest decision on interest rates. Dollar enthusiasts should hope the ECB acts upon recent euro zone leadership concerns, and cut rates. However, business confidence readings from important European national markets offer no reason for the ECB to back off of its hawkish concerns. The ECB has not moved on rates this year. However, the Bank of England is scheduled to make an announcement as well, and economists are looking for a rate cut of a quarter point there, to 5%.
Because of the weakening dollar, and softening overall domestic demand for goods, including imports, the trade deficit has narrowed this year. We expect that trend to continue with the International Trade Report for February. Bloomberg’s consensus sees the trade deficit narrowing to $57.5 billion, from $58.2 billion in January.
Weekly initial jobless claims are expected to back off of their break of 400K last week, easing to a still concerning 386K. The U.S. budget balance likely improved $10 billion in March, according to Barron's, bringing the deficit down to an estimated $85 billion. Both Bernanke and Paulson are scheduled to make appearances on Thursday, so expect to see more sidewinding.
Thursday's earnings reports include Genentech (
NYSE: DNA), Rite Aid (
NYSE: RAD), Adams Express (
NYSE: ADX), Bank of the Ozarks (
Nasdaq: OZRK), Bassett Furniture (
Nasdaq: BSET), CardioDynamics Int'l (
Nasdaq: CDIC), FCStone Group (
Nasdaq: FCSX), Hayes Lemmerz (
Nasdaq: HAYZ), Intervoice (
Nasdaq: INTV), Peerless Systems (
Nasdaq: PRLS), Pier 1 Imports (
NYSE: PIR) and a couple other microcap stocks.
FridayBloomberg's survey indicates that Friday’s Import/Export Prices Report is expected to show that inflation and higher oil prices drove a 1.8% import price increase in March. The University of Michigan’s preliminary Consumer Sentiment Index for April is expected to measure 68.0, down from 70.5 in March.
The Group of Seven finance ministers meets in Washington, where the dollar dive is probably tops on the agenda. Friday's earnings reports will originate from Fastenal (
Nasdaq: FAST), General Electric (
NYSE: GE) and Shaw Communications (
NYSE: SJR).
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