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EDITOR
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Week Ahead: Markets Grapple With Uncertainty
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CNBC Executive Editor
Stocks in the coming week will navigate the uncertainties of Japan's nuclear crisis and the potential risk of heightened military action in Libya.
Jim McDonald
Northern Trust
Global market forces will also be at work as investors watch foreign exchange trading, after the Group of Seven countries jointly worked to drive down the rapidly rising yen Friday. Stocks will continue to be vulnerable to any sharp moves in energy markets, should Middle East developments send oil barreling higher.
Stocks in the past week saw heavy selling, but ended the week with two up days. The Dow lost 1.5 percent to 11,858, while the S&P 500 fell 1.9 percent to 1279. The Nasdaq suffered the most, down 2.7 percent to 2643. The S&P by Wednesday was down 6.4 percent from its Feb. 18 multi-year high of 1343.
"It's quite amazing it's not been a full 10 percent correction, after a 25 percent move up. Given the somewhat dramatic nature of what was going on in the Middle East and Japan, given all these things, the market is acting very well," said Stuart Freeman, chief equity strategist at Wells Fargo Advisors.
"Certainly a positive is a Libya cease fire, but how long does that last? I don't think we in the worldwide community are completely clear that the Japanese nuclear issue is under control," he said.
"We came into this year saying 1250 to 1300 is a base case of where we could be at the end of the year...and if all the planets align and there's no glitches we could be at 1400 at the end of the year...assuming things go well from here. So far things haven't gone so well," said Freeman.
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Fred Dufour | AFP | Getty Images Policemen check cars for victims in Minamisanriku, Miyagi prefecture on March 18, 2011. |
There are several new pieces of housing data in the coming week, durable goods and consumer sentiment. Fed Chairman Ben Bernanke speaks at a banking conference Wednesday, and there are several other Fed speakers on the calendar. But the main focuses are the Middle East and the crisis in Japan, where a devastating 9.0 earth quake and tsunami a week ago destroyed communities and disrupted the economy. The big question hanging over Japan is whether progress can be made in controlling the damaged nuclear reactors at the Fukushima Daiichi nuclear plant and whether any major population centers are at risk from radiation contamination.
The extent of the potential problems with the Fukushima reactors was still unclear, but investors appeared to have moved beyond fears of the worst case scenario by Friday. Northern Trust chief investment strategist Jim McDonald said that a major issue was a lack of reliable and timely information but after studying the situation he believes the risks from Japan are not likely to derail the global economic expansion.
Supply chain disruptions are expected and the impact so far on companies is unclear, but the direct impact on U.S. economic growth from the earthquake and its aftermath should be minor, he noted. Japan consumes just 4.7 percent of U.S. exports, and represents just 0.4 percent of U.S. GDP.
"We got our utilities analyst here and we said to him: 'You're our guy. You read everything and you tell us what the heck is going on. He was the one to come to us and say, 'hey it's not as bad as it's being made out to be. There is risk certainly but it's not something that's going to lead to mass illness around the world," said McDonald. Like many in the markets, they concluded that the situation is not likely to be as hazardous as the Chernobyl nuclear disaster.
Investors will be watching companies to see what they say about the impact of the Japanese earthquake on their supplies or business. Tiffany [TIF
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] reports earnings Monday morning, and it generates about 20 percent of its sales in Japan. The company has had to shut down some of its 55 Japan stores. Research in Motion [RIMM
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], Oracle [ORCL
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] and Best Buy [BBY
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] report earnings Thursday, and they also may comment on any Japan-related impact.
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Data is a real-time snapshot *Data is delayed at least 15 minutes
