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First Quarter On Track to Be Best in 14 Years

Stocks enter the final week of what’s shaping up to be the best first quarter in 14 years, with little hope the second quarter can match its gains.

Rose | Mueller | Stock4B | Getty Images

The focus in the coming week will be on the U.S. economy and whether the improvement seen in employment will show up in other data. There are reports on consumer sentiment and personal income and spending, as well as durable goods and Chicago purchasing managers data.

“I think the economic data has been starting to disappoint a little bit,” after this past week’s string of housing reports, said Gina Martin Adams, Wells Fargo Securities institutional equities strategist. “That’s a bit of a key as to why the market is correcting here. Whether that continues is what we’re looking for next week.”

The Federal Reserve could also be an influence as more than a half dozen speeches are expected from Fed officials, the most important of which comes Monday morning at 8 a.m. ET, when Fed Chairman Ben Bernanke speaks to the National Association for Business Economics. Bernanke has seemed less dovish, or less certain about another round of quantitative easingin recent comments, so markets will be watching this speech closely.

“He got what he wanted last week, which was to refocus the market on this message — that while the economy has improved slightly, the U.S. recovery still faces significant challenges and we’re not out of the woods yet,” said CRT Capital senior Treasury strategist Ian Lyngen. “We’ll probably hear a solid repeat of what he’s had to say.”

By the end of the week, Europe could once more be a concern as European finance ministers meet Friday to hash out the structure and size of its bailout funds. Traders have been watching Spanish and Italian bond yields rising in recent sessions. Spain is expected to have budget news on Friday, and that is being monitored since Spain recently said it needed to run a bigger than expected deficit.

The euro in the past week gained 0.7 percent, and was at 1.327 Friday. Treasury bond yieldsmeanwhile were lower on the week, with the 10-year at 2.23 percent Friday.

“The backdrop for next week is likely to be euro negative, probably a couple days in advance of that,” meeting, said Robert Sinche, head of global currency strategy at RBS. “There’s going to be a reaction to it, and my guess is it’s going to be negative. The question is whether all of Europe comes together and increases the fire power or somehow upsizes the fire power of the EFSFor ESM (bailout mechanisms)”

What Else to Watch

Another big factor in the coming week will be how oil behaves. On Friday, Nymex WTI crude and Brent were both more than a percent higher on reports that 300,000 barrels a day of Iranian oil is now off the market, and rumors of increased military readiness by Israel, which an Israeli official denied.

Brent was down slightly on the week at $125.13 per barrel, while WTI was off 0.7 percent for the week at $106.87 per barrel.

“Oil prices can be a threat,” said Adams. “A few weeks ago we identified a level for WTI of $112, as potentially problematic. You have to get there and stay there for four weeks before it becomes a problem. At that level, consumers are spending 13 percent of their disposable income on a combination of food and energy. That’s the place where consumers say ‘enough is enough, I have to cut back,’ and that becomes a problem.”

Gasoline continued to climb at the pump — to a national average of $3.889 per gallon — and in the futures market.

RBOB futures rose 0.8 percent to $3.385. The CFTC reported Friday that there was all-time high open interest in RBOB gasoline futures in the week ended March 20. According to Citi Futures analyst Tim Evans, overall managed money net long positions in U.S. petroleum markets declined by 15,814 contracts, but exposures remain in overbought territory, with net long positions of 405,190 contracts, the equivalent of 405.2 million barrels.

There are also a few earnings in the coming week as Total and Walgreen report Tuesday, and Best Buy and Research In Motion report Thursday.

Health care stocks could also be a focus as the Supreme Court hears a challenge to the health care reform legislation, championed by President Obama. The court will hear three days of arguments and a decision comes later.

Whither Stocks

The Dow was down 1.2 percent for the week to 13,080, its worst week since Dec. 16, but it is still up 7 percent for the quarter. The S&P 500lost 0.5 percent for the week to 1397, but it is up 11 percent since the start of the year. Both the Dow and S&P are on track for their best first quarter since 1998.

The Nasdaq, up 17 percent for the quarter, was up 0.4 for the week, ending at 3067. The Nasdaq 100 was up 0.6 percent this past week to 2728, higher for a twelfth week and its longest winning streak since 1999.

“You can’t expect the second quarter to be like this first quarter,” said T3live.com’s Scott Redler, who follows short term technical moves. “If we’re flat in the second quarter, it’s going to be a win, and that would set us up for a nice second-half move.”

Redler said he expects traders to watch the market’s moves over the next several days to see how the second quarter is setting up. “This really feels like a run of the mill constructive correction ... It could be within the same 2 to 5 percent pullback we’ve seen since the rally ignited back in December. Money keeps rotating and leadership keeps changing. It’s really been a follow the money, stock picker’s rally,” said Redler.

Financials, up 20 percent, and the S&P tech sector, up 19 percent, are the best-performing sectors for the quarter. Utilities were down more than 3 percent and were the worst performers, while energy and materials were both up more than 3 percent, also underperformers.

“I still like traditionally cyclical sectors that trade defensively, like tech,” said Adams. She said she does not like energy since is more high beta and influenced more by the global economy.

Monday

7:00 a.m. Philadelphia Fed President Charles Plosser

8:00 a.m. Fed Chairman Ben Bernanke on the economy at NABE economic conference

10:00 a.m. Pending home sales index

10:30 a.m. Dallas Fed survey

Tuesday

9:00 a.m. S&P/Case-Shiller HPI

10:00 a.m. Consumer confidence

10:00 a.m. Richmond Fed Survey

12:45 p.m. Bernanke lectures at George Washington University

1:00 p.m. $35 billion 2-year note auction

3:45 p.m. Fed Gov. Elizabeth Duke on building sustainable communities

9:00 p.m. St. Louis Fed President James Bullard on monetary policy, in Beijing

Wednesday

8:30 a.m. Durable goods

1:00 p.m. $35 billion 5-year note auction

Thursday

8:30 a.m. Weekly jobless claims

8:30 a.m. Real GDP Q4 final

10:30 a.m. Richmond Fed President Jeffrey Lacker at Richmond Fed credit market symposium

11:00 a.m. Kansas City Fed survey

12:45 p.m. Bernanke at George Washington University

1:00 p.m. $29 billion 7-year note auction

1:00 p.m. Fed’s Plosser on economic outlook

Friday

European finance ministers meet

8:30 a.m. Personal income

9:45 a.m. Chicago PMI

9:55 a.m. Consumer sentiment

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.