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Week Ahead: Banking Reform Will Overshadow Even the Fed
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CNBC Executive Editor
Whither Stocks
The overall market is likely to churn this summer, Levkovich said. "There's an extreme lack of conviction, so if the market is trending up investors kind of go with it and if it's trending down, investors kind of go with it...It was three weeks ago when you had that 330-point drop in the Dow, partially because of the jobs number. That was enough to tear some people's hope out," said Levkovich.
"So they're looking for something, and the fact the market has been able to bounce back from its low and cross the 1100 level on the S&P gives the them a feeling it's not just falling apart on them. Our view is that we go through the summer, we're going to go up and we're going to go down but there's not going to be a lot of things that will tell you what to believe or not to believe," he said. Levkovich said he still expects the S&P to end the year at 1175, and that it may make a move higher towards the end of the year.
Trennert sees equities as the best value from an asset allocation point of view, but stocks may not perform until some of the uncertainties, like regulatory reform, are resolved. "I think all of these uncertainties are the main reason why investors are willing to leave money in money market funds, or put money to work in bonds and are unwilling to pay 12 times earnings for Microsoft," said Trennert. "The range of outcomes from either the economy or policy are so wide that nobody wants to take risks."
If the harshest elements are removed from the financial reform bill, he said stocks could rally.
Levkovich said U.S. investors focus so much on Europe because they worry the U.S. could face the same fiscal issues and that is a head wind for the market. But the anticipated report form the bipartisan commission on the deficit and efforts by politicians to show fiscal restraint around the mid term election in November may help the market.
Investors are also concerned about higher taxes in 2011, as the Bush tax cuts expire at year end. He also said the fact that individuals will have to pay higher taxes may not be all negative. "That's another sense of more fiscal responsibility if you're going to have to pay," he said.
The upcoming earnings season may bring a few bumps of its own. "Earnings estimates are going to be trimmed down, and people are putting in the foreign exchange affects from Europe," he said. "You've got worries about the slowdown in Europe, worries about the economic indicators potentially having slowed their momentum domestically, and we've got a couple of numbers, whether its retail sales or the Empire State index, which just aren't fantastic. We have this perverse expectation things have to get better and better and that's not how economic trends occur. You put that all together, and the news flow won't be that fantastic but it won't be all that bad either."
In the next week, earnings from Walgreen [WAG
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Econorama
The Fed's two-day meeting could result in a slight tweak to the Fed's statement but it is not likely to say much more than that it is concerned about Europe, analysts and economists say.
Trennert said besides the Fed, he thinks jobless claims could be a big item to watch and they could be a market mover. "This (past) week claims were disappointing. The longer we go without employment picking up, the greater the concerns about a double dip. I still think that's remote, but it's important. I think the problems in Europe are of such a magnitude that the Fed is going to continue to keep liquidity ample," he said. "I would say there's very little chance of getting a surprise from the Fed until well into 2011."
Housing data tops the list of economic data in the coming week. Existing home sales and FHFA home price data are reported Tuesday, and new home sales are Wednesday. Durable goods are reported Thursday, as is weekly jobless claims data. On Friday, consumer sentiment and the final look at first quarter GDP are released.
The Treasury in the coming week auctions $40 billion in 2-year notes Tuesday; $38 billion 5-year notes Wednesday, and $30 billion in 7-year notes Thursday.
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Data is a real-time snapshot *Data is delayed at least 15 minutes
