Market Insider

Facebook 'Friends' Stock Market but Economic Data May Matter More


A long-awaited IPO filing from Facebook will surely be the highlight of the market day Wednesday, but it may be the private sector payroll data and ISM manufacturing survey that get more reaction.


Facebook is expected to file for a $5 billion IPO, a small share of the company’s potential market cap. While other social networking companies have gone public, Facebook is the blue chip equivalent the market has been waiting for.

“It could be good for the market,” said Art Cashin, floor director of operations at UBS. “They’re doing a relatively small piece. The feeling is they’re trying to relatively underprice it to the market.”

While there was a lot of hype around  some of the other social networking names, like LinkedIn and game company Zynga , Facebook may be trying to be more cautious, and it is now expected to announce a $5 billion offering, not the $10 billion originally reported. Cashin said despite the hype, there is a “very minor dotcom bubble.”

Paul Hickey, co-founder of Bespoke, said a case could be made that Facebook may take away some market gains. “It goes both ways. A lot of these social networking companies had a big pop last week on the news they were going to file for their IPO. The reality is that Facebook is much larger than any of these. If you have a large increase in supply of social networking stocks, it’s going to sap interest in demand for the other stocks,” he said.

The stock market Tuesday finished mixed, but closed out January with the best gains in 15 years. The Dow was off 20 at 12,632 ,and the S&P 500 was off just under a point Tuesday at 1,312. The Dow was up 3.4 percent for January, and the S&P was up 4.4 percent. The market weakened after a drop in home prices, and weaker-than-expected consumer confidence and Chicago PMI data.

The S&P 500, however, caught traders attention when it triggered a “golden cross,” meaning its 50-day moving average rose above its 200-day average. That is seen as the signal of an uptrend, but some analysts see it more as a psychological positive, confirming a move, rather than as a major signal.

“I think it’s a bit overstated. Yes, it has a nice history, but it works better on individual stocks,” said Cashin. He noted that the market is full of opposing signals, with some bullish long term indicators, like the “cross,” at odds with shorter-term signals that are negative. One negative is that the market is entering a seasonally weak time of year, after stocks scored their best January in 15 years.

Bonds, on the other hand, are being swept along by the negatives — both the weaker data and uncertainty about Greece’s negotiations with private creditors. Both stocks and bonds are reacting to the Fed’s forecast last week that it could keep rates near zero through 2014, adding to speculation that it could do even more easing to push rates lower.

The 10-year yield slipped to 1.799 percent, its lowest level since October, and the 5-year hit another record low of 0.70 percent.

CRT Capital chief Treasury strategist David Ader said the market may also be reacting to the idea that the January jobs report might not be that strong when it is released on Friday. “There’s a reluctance to chase the market, and a desire to sell what might be a technical resistance,” he said.

What Else to Watch

Investors are also likely to be interested in the Florida primary, which was won by former Mass. Gov. Mitt Romney, the favorite of some on Wall Street. They will now focus on Romney as the likely presidential candidate to challenge President Obama.

Earnings reports are expected ahead of the opening bell from Aetna, Volkswagen, Fiat/Chrysler, AOL, Northrop Grumman, Hershey, Whirlpool and Marathon Oil. After the bell reports are expected from Green Mountain Coffee, Chipotle Mexican Grill, Qualcomm, Electronic Arts, Las Vegas Sands, JDS Uniphase, and Allstate. will also be a focus Wednesday, after its stock fell 9 percent in late trading on weaker than expected sales.

Earnings to Watch

ADP’s private sector payroll report is released at 8:15 a.m. EST and is expected to show 170,000 private sector jobs were added in January, down from the 325,000 in December. The Challenger job cuts report is at 7:30 am. and the ISM manufacturing survey is at 10 a.m. EST. Auto sales, expected to at least match December 13.5 million annual selling rate, are expected to be reported throughout the day.     

The ISM manufacturing survey is expected to be 53.9, but some economists believe the number will be weaker. Goldman Sachs economists Tuesday revised their forecast for ISM to 53.5 from 54, after Chicago PMI fell 2 to 60.2 in January.

Citigroup economist Steven Wieting said he also has a below consensus forecast for ISM but also for the nonfarm payrolls Friday, which he sees at just 100,000.

“There are a lot of cyclical indicators for the U.S. where the very strongest of the 2011 numbers we just can’t extrapolate going forward. We think the economy is growing closer to 2 percent in the first quarter,” he said. Fourth quarter GDP came in at a disappointing 2.8 percent Friday.

Follow Patti Domm on Twitter: @pattidomm