Week Ahead: Traders Watching Economic Data From the Beach
Late summer usually means a slow drift for stocks as traders head to the beach.
But with heightened concerns about the economy, investors will hone in on every piece of economic news and Fed Chairman Ben Bernanke's Friday speech on the economy (see page 2). Housing data, durable goods, jobless claims and a revised look at second quarter GDP will provide grist for the debate about how much the economy is slowing.
"We just came off a good earnings season, but we're not going to hear from corporate America for a long time now, and it seems that away from corporate profitability, there's not a lot of good news," said Wedbush Securities managing director Steve Massocca.
"Given the fact that equities are incredibly under-owned right now, and it's the last week of August, it's kind of traditional that nobody works, so I think it's going to be kind of slow," he said.
Stocks in the past week were mostly lower to mixed. The Dow was down 0.9 percent to 10,213, and the S&P 500 was down 0.7 percent to 1071. Yet, the Nasdaq was up 0.3 percent and the Russell 2000 was also modestly higher. Bonds, however, were riding high and strong buying drove yields lower. The 2-year saw a record low yield, and finished the week at 0.496 percent. The 10-year was yielding 2.614 percent.
The dollar had another up week, with the dollar index rising 0.8 percent. The dollar was up 0.4 percent against the euro at $1.27, and 0.8 percent against the yen. Risk assets, like oil, moved lower as the dollar moved higher on fears of slower economic growth. Nymex crude was down 2.6 percent to a six-week low of $73.46, as the government reported total petroleum inventories rose to record levels.
Already gloomy forecasts on the economy was notched down by several Wall Street economists, as the data continued to disappoint. The worst jobless claims report since November came on Thursday, and showed a move up to 500,000 new claims, the third weekly increase in a row.
"We're in this spot where we continue to be stuck in limbo. You've got neither data to prove you're going into another recession, nor the data to prove you're not," said Bill Stone, chief investment strategist at PNC Wealth Management.
"It's not exactly pleasant, but it's one of those times you have to stake your claim...If you believe earnings aren't going to completely melt, then valuations look rather attractive," he said.
Stone said stocks will probably bump along for while but he maintains a year end target of 1225 on the S&P 500. "There's plenty of downside risk. You don't have to go through the long list of what can go wrong. You have to weigh it against what you can invest in. The dividend yield on the S&P 500, compared to the yield on the 10-year, is the lowest spread between the two since the 1960s," he said, noting there was one exception during the height of the financial crisis.
In the week ahead, traders will also be watching some key technical levels.
"We seem to be holding the 1070 level (on the S&P), which we held earlier in the month," Massocca said. "I think unless we breach that significantly, it's kind of the bottom of the trading range at this point. But I'm more concerned that we're going to break this 1070 level than we're going to trade higher."
"There's so many cross-currents," he said.
Trying to Gauge 'Quantitative Easing'
The Kansas City Fed's annual symposium in Jackson Hole, Wyo. puts the spotlight on the Fed this week. This is one of the most important Jackson Hole events in some time, according to Pimco's Tony Crescenzi.
The Fed, in fact, has been in the spotlight since its last FOMC meeting. At the August meeting, it downgraded its view of the economy and said it would use the proceeds from maturing mortgage securities to purchase Treasuries, in essence maintaining the size of its balance sheet even as the mortgages roll off.