Facebook IPO a Bright Spot as Markets Keep Eye on Europe
CNBC Executive News Editor
Wall Street could get a chance to show just how much it “likes” Facebook in the week ahead.
Facebook’s giant initial public offeringis tentatively scheduled to price May 17, pending Securities and Exchange Commission approval. But Europe may continue to drive the action as markets navigate the politics of Greece, and Italian and French debt auctions.
There is also a heavy calendar of U.S. data, including retail sales, industrial production, weekly jobless claims, and the minutes of the Federal Reserve’s last meeting.
“I don’t see much reason for the market to bounce next week,” said Barry Knapp, head of equity portfolio strategy at Barclays.
Knapp said his concerns include deteriorating U.S. economic data; the political clash against austerity in Europe, and weaker global growth, clear in China’s economic reports this past week.
Investors will also pay close attention to JPMorgan Chase, which revealed a shocker $2 billion derivatives trading lossThursday. JPMorgan CEO Jamie Dimon told NBC’s “Meet the Press” that the company reacted badly to red flags. Dimon will again have to explain the trading blunder to shareholders at its annual shareholder meeting in New York Tuesday.
Already on Friday, there were calls for congressional hearings into the losses. Fitch also downgraded JPMorgan’s long-term issuer default rating to A+ from AA-, and put the parent company and subsidiary long-term ratings on negative watch.
Facebook Friends Stock Market
Facebook’s IPO, however, is an event that has been awaited for months. Despite mixed reviews for its roadshow, Facebook’s offering is many times oversubscribed, and it could raise as much as $13.5 billion.
“I think it shows there’s growth out there. There’s new concepts and there’s entrepreneurialism, and some people could get pretty rich over this,” said Bob Doll, vice chairman of BlackRock.
It’s not likely to affect the stock market much, if it goes as planned, he said. “Despite its size, it’s enough of a niche within the market and technology space, it doesn’t necessarily dictate how the market moves here,” Doll said.
However, IPO experts say the Facebook offering, which could value the company at more than $95 billion, must trade well or it could dampen the entire IPO market. The IPO market, while active, has been sputtering when it comes to pricing, with many deals pricing under their offering ranges.
“My guess is it will be priced to perform well out-of-the-gate, and after that, it’s going to be what do the fundamentals look like because the valuation is expensive,” said Doll.
There was some talk that the price could even be raisedahead of the offering. Sources tell CNBC’s Kayla Tausche that the company could issue a revised filing with a higher price range Tuesday.
“Facebook will dominate the headlines for a day or two, but Europe will be there before the Facebook deal comes, and it will be there after the Facebook deal is done,” said Doll.
Many strategists see a further decline ahead for the stock market and expect choppiness to continue.
“I don’t draw any comfort from anything I see going on in Europe, and the fact that Asia looks like it’s going south now … the U.S. numbers don’t look all that great — I’m not sure why anyone would be wanting to play the market from the long side now. I think we have a couple months of downside,” Knapp of Barclays said. “We’re only down five (percent). I think there’s more coming.”
Stocks ended the week with losses. The Dow Jones Industrial Average was down 1.7 percent to 12,820, and the S&P 500 index was down nearly 1.2 percent at 1,352. The dollar gained for a second week, with the dollar index up nearly a percent.
Doll said investors had been looking for a market correction , and many were looking for a dip where they could put new money to work. He expects the market to find a bottom in the current pullback somewhere between 1,300 and 1,350, before the market starts moving back up.
But he said it could get “sloppy” again in the second half, ahead of the presidential election. The market may also run into trouble as it focuses on the “fiscal cliff,”or the budget cuts and tax hikes expected next year.
“I don’t think this consolidation period is over, but I think we’ll try to go higher again. I assume Europe muddles through. The data is not great but good enough,” Doll said.
Art Hogan of Lazard Capital Markets said he thinks the consolidation will continue, and the market could go down several more percent. “I think we have even more headwinds than we have tailwinds,” he said.
Hogan expects Europe to hold the market’s attentionin the coming week. Next week, newly elected French President Francois Hollande will meet German Prime Minister Angela Merkel for the first time Tuesday, the day he is sworn in. The meeting is important because the relationship between Germany and Frances is seen as vital to the future of the euro zone.
Leader of the group of eight (G8) most industrialized nations meet in Camp David late in the week, and they will also be watched for what they say about the euro zone debt crisis.
Important data in the coming week include the Philadelphia Federal Reserve and Empire State manufacturing surveys, which are good barometers for current activity. Retail sales data Tuesday will be an important look at the consumer.
The Fed’s minutes from its last meeting will be watched, when they are released Wednesday, but they are not expected to reveal much new on possible easing. Even though the Fed has indicated there is no further easing planned, the market continues to speculate that the Fed will ultimately carry out more quantitative easing, or bond purchases.
“The minutes should not show that they’re inclined to do further easing. They kind of sounded hawkish on paper then (Fed Chairman Ben) Bernanke sounds dovish in speeches. It’s like he’s managing expectations through the continuum of being dovish,” said George Goncalves, Treasury strategist at Nomuras America.
He’s also watching Europe. “There’s Italian auctions and there’s French auctions, Monday and Wednesday,” he said. Greece is also scheduled to make a debt payment Tuesday.
The 10-year Treasury yieldfell in the past week to 1.84 percent, as investors bought bonds in a flight to safety trade. This past week, the Treasury auctioned 10-year notes at the lowest yield ever, at 1.86 percent.
“I think the stock market has done a much better job at determining the economic path,” said Goncalves. “It’s hard for me to think about a bad world, when you still can have a large IPO coming to market.”
What to Watch Next Week:
Earnings: Groupon, Agilent
Earnings: Home Depot, TJX Cos., Dick’s Sporting Goods, Saks, J.C. Penney, Ralcorp
0830 am Retail sales
0830 am CPI
0830 am Empire State survey
0900 am TIC data
1000 am NAHB survey
1000 am Business inventories
Earnings: Target, Limited Brands, Abercrombie and Fitch, Staples, Deere
0830 am Housing starts
0915 am Industrial production
0200 pm FOMC minutes
Facebook IPO prices
Earnings: Wal-Mart Stores, Dollar Tree, Gamestop, Gold Fields, Advanced Auto Parts, Applied Materials, Autodesk, Aeropostale, Salesforce.com, Zumiez, Marvell Tech
0830 am Initial claims
1000 am Philadelphia Fed survey
1000 am Leading indicators
Facebook stock trades
Earnings: Ann, Donaldson, Foot Locker
Follow Patti Domm on Twitter: @pattidomm
Questions? Comments? Email us at firstname.lastname@example.org