March payrolls pleased, but now stock investors look to the start of the new earnings season.
April 4, 2004: 7:33 AM EDT
NEW YORK (CNN/Money) - With the labor market starting to show signs of a pickup, the stock market's focus turns to the first-quarter financial reporting period, which will begin to heat up in the week ahead.
Earnings in the first quarter are thought to have risen nearly 17 percent from the same period a year earlier, according to Standard & Poor's research, and some analysts say the real earnings numbers could be even stronger.
While this would certainly be a positive for business spending and the economic recovery, strong earnings are so fully-anticipated that some analysts are worried the stock market may not react much to the release of the actual numbers.
"I think the earnings are going to be better than expected, but I don't know whether the market's going to rise on that," said Jon Burnham, portfolio manager at Burnham Securities.
Concerns about the pace of the economic recovery remain in the stock market, even as Friday's March employment report showed that employers added a surprisingly robust number of new jobs to their payrolls last month. (For a look at the main economic and other news expected next week, click here.)
For stock investors, there is also the concern that a strong pickup in hiring and recent mild signs of inflation could cause the Federal Reserve to boost interest rates from their current historically low levels sooner than expected. The stock market generally doesn't like higher rates, and such an environment would also negatively impact consumer spending, boosting rates on credit cards, mortgage rates, and other things that have supported the economy.
However, few Fed watchers expect the central bank to move just yet, after only one month of strong payrolls growth.
Stock markets rallied Friday on the employment report. A few more months of very strong employment numbers would be needed to solidify the view that the recent slowdown in the economic recovery was merely an anomaly and to support continued stock gains, analysts said.
A continued upswing in hiring would also be seen as helpful to President Bush's re-election campaign. Many Wall Streeters tend to prefer Republican administrations in the White House, and in particular, would like to see Bush re-elected, due to the belief that his administration would be more friendly to big business than a Democratic one.
"I think the market is in reasonably good shape until later in the year when the political stuff becomes more center stage and then we'll see what happens," Burnham added. "Shorter-term, the employment number Friday was good, I think earnings will be excellent, but a lot of that may be baked into the market already."
As is tradition, Dow component Alcoa (AA: Research, Estimates) kicks off the reporting period with its results Tuesday. Other companies due to report during the week include Genentech (DNA: Research, Estimates), Research in Motion (RIMM: Research, Estimates), Yahoo! (YHOO: Research, Estimates), Abbott Labs (ABBT: Research, Estimates), Rite Aid (RAD: Research, Estimates), and General Electric (GE: Research, Estimates). For a look at the week's key earnings reports, click here.
Burnham said there may be some non-earnings related selling pressure in the next few weeks as people sell stocks to have money to pay their taxes.
Working in its favor, April is typically a good month for the market, according to the Stock Trader's Almanac, with it rating as the best Dow month since 1950, averaging gains of about 1.9 percent. However, that doesn't apply to election years, when Aprils are generally pretty flat.
Key events in the week ahead
The Institute for Supply Management releases its March report on the services sector of the economy Monday. It's expected to have risen to 61.0 from 60.8 in February.
Alcoa starts off the earnings reporting period when it releases its results after the close Tuesday. The aluminum producer is expected to have earned 42 cents per share, according to First Call forecasts, up from 23 cents per share a year earlier.
Yahoo! reports results after the close Wednesday. Analysts expect it to have earned 10 cents per share, up from 8 cents a year earlier.
Thursday morning brings the earnings release from General Electric. GE is thought to have earned 31 cents per share, versus 32 cents a year earlier.
The report on wholesale inventories is due Thursday and is expected to show inventories rose 0.2 percent in February after rising 0.1 percent in January.
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