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Apple and other major corporate earnings could boost stocks in the week ahead, but it's the jobs report Friday and other economic data that may ultimately matter most.
The Federal Reserve also meets Tuesday and Wednesday, and while it is not expected to take any action, the words in its post-meeting statement could make a difference to a market focused on the recent string of soft data. Starting with the just 98,000 jobs added in March, there was a drop in CPI inflation, weak retail sales and the squishy first-quarter growth of just 0.7 percent, reported Friday.
"We know with the 4.5 percent unemployment rate, the economy is at full employment. How bad can the labor market reading be?" said Chris Rupkey, chief financial economist at MUFG Union Bank. "If it's another weak report, that would call into question whether March really did have some weather-related issues." Economists expect 185,000 nonfarm payrolls, but many expected more than 200,000 last month and got less than half.
"Another weakling jobs report, two in a row would make people wonder about the strength of the economy," said Rupkey.
Economists have written off part of the first quarter's softness due to a very warm January and February, followed by winter storms in March. They are mostly forecasting a bump higher in the second quarter, with growth as high as 3 percent or more. But individual economic reports will have to support the turn. So far the stock market has ignored the economic data misses and focused instead on this quarter's super-strong earnings.
"It is very important to observe the economic data next week, the point being that the consumer sentiment index actually declined a little bit. There's a very sharp divergence between confidence and economic performance. Our work has shown that when confidence starts to turn equity market performance and market multiples start to turn as well," said Julian Emanuel, equity and derivatives strategist at UBS. "Very important is going to be the employment data. Obviously with the French election coming on May 7, I don't think [the Fed is] going to change their tone at all."
There will also be focus on geopolitical events. Tensions between North Korea and the U.S. remain in the headlines, as North Korea test-fired a ballistic missile Friday evening which failed. There is also the second round of the French election May 7. Markets have been trading more calmly since the first round results were announced last Sunday. Centrist Emmanuel Macron is now expected to win the presidency, over Marine Le Pen, a far-right candidate who wants to take France off the euro.
Earnings, earnings, earnings
By the end of the coming week, most S&P 500 companies will have reported first-quarter earnings. Reports are expected from a diverse group of companies. Apple tops the list Tuesday, but there will also be reports from Facebook, Pfizer, BP, Viacom, Kraft Heinz and MasterCard.
The expectation is that S&P companies' profits could be up 13.6 percent or more, based on actual reports and forecasts for companies that have not yet reported, according to Thomson Reuters. Seventy-seven percent of companies reporting have beaten profit forecasts so far.
The S&P closed up 1.5 percent for the week, its best week since Jan 6. For the month of April, the index was up 0.9, its fifth positive month in six.
"I think the big story behind the U.S. equity market is earnings. We're right smack in the middle of what's going to be the best quarter since the fourth quarter of 2011," said Leo Grohowski, CIO of BNY Mellon Wealth Management. "We have an equity-friendly economic backdrop. ... The economy is not growing strongly but it's growing enough to generate earnings growth, and it's growing slow enough to keep the earnings expectations at bay."
Emanuel said earnings that beat estimates are not being rewarded at the same degree as those that miss are being punished. "Earnings alone at this aggregate market level is not enough to move the market materially higher. You need policy and you need economic performance."
He said the economic reports will take on more importance in the coming week, since they may reveal whether the second quarter is showing improvement or still dragging.
Economists expect to see a recovery in the April employment report, when it is scheduled to be released Friday morning. The expectation for 185,000 jobs includes 13,000 manufacturing jobs, according to Thomson Reuters. Average hourly wages are expected to rise 0.3 percent.
Besides the jobs report, there is a whole slate of economic data that are important in the week ahead. On Monday, two crucial measures of manufacturing activity are released — the ISM manufacturing survey and Markit's manufacturing PMI. There are also vehicle sales Tuesday, which could be important after a surprisingly large drop-off in March.
There is also personal income and spending Monday, and the important personal consumption expenditures index, Fed Chair Janet Yellen's favorite measure of inflation.
"On Monday, we might have some heads turned by PCE inflation. Yellen's looking at core PCE inflation," said Rupkey. "It's possible March data could be a little on the softer side for core PCE inflation, short of 2 percent. I wouldn't be surprised if it's 1.7 percent." Core excludes food and energy, and 2 percent is the Fed's target for inflation.
Headline PCE was above 2 percent in the first quarter but core inflation has running behind it. For March, CPI inflation data was also surprisingly weak. With the sluggish growth and softer inflation, the concern is the Fed will be hiking interest rates this year in too soft conditions. Market expectations for a Fed rate hike in June, however, are more than 60 percent, as economists wait for the expected turn up in the economy.
"It's a very odd market. You get the fed fund futures saying 64 percent of a rate hike in June, but why aren't 10-year Treasury yields a little bit higher," said Rupkey. The 10-year Treasury was yielding 2.28 percent Friday.
Inflation data will be important ahead of the Fed meeting, and for expectations of further central bank rate hikes this year. There are a number of Fed speakers after this week's meeting, with Yellen appearing Friday in a webcast at Brown University.
Some economists don't expect the Fed to change its tone at this week's meeting, particularly since the data are questionable.
"People are waiting to see whether or not over the next several weeks the anticipated pickup in the economy materializes," said Emanuel.
What to Watch
8:30 a.m. Personal income
8:30 a.m. Consumer spending
9:45 a.m. Manufacturing PMI
10:00 a.m. ISM manufacturing
10:00 a.m. Construction spending
Earnings: Apple, Aetna, Archer-Daniels Midland, Merck, Pfizer, CVS Health, BP, MasterCard, Altria, ConocoPhillips, WebMD, Weight Watchers, FireEye , Devon Energy, Etsy, Gilead Sciences, Newfield Exploration, Anadarko Petroleum, Cummins, Coach, Mosaic, Allstate, Becton Dickinson, Eaton, Lumber Liquidators
April vehicle sales
Two-day Fed meeting begins
Earnings: Facebook, Time Warner, Volkswagen, AIG, Kraft Heinz, MetLife, Tesla Motors, Avis Budget, Tableau Software, Pioneer Natural Resources, Yamana Gold, Estee Lauder, Southern Co, Garmin, Sprint, Wellcare Health, Molson Coors Brewing, Humana, Cheesecake Factory, Fitbit, MetLife, Groupon
8:15 a.m. ADP payrolls
9:45 a.m. Services PMI
10:00 a.m. ISM non-manufacturing
2:00 p.m. Fed decision
Earnings: A-B InBev, Occidental Petroleum, Royal Dutch Shell, Adidas, Kellogg, Viacom, Beazer Homes, AMC Networks, Siemens, Dunkin Brands, Chesapeake Energy, Marathon Oil, Allscripts Healthcare, El Pollo Loco, Shake Shack, PerkinElmer, Zynga, Zillow, Wageworks, DeVry Education, CBS, Activision Blizzard, Herbalife
8:30 a.m. Jobless claims
8:30 a.m. Trade deficit
8:30 a.m. Productivity
8:30 a.m. Unit labor costs
10:00 a.m. Factory orders
Earnings: TransCanada, Cognizant Tech, Moody's, Cigna, CenterPoint
8:30 a.m. Nonfarm payrolls
3:00 p.m. Consumer credit
11:30 Fed Vice Chairman Stanley Fischer at Hoover Institution Monetary Policy Conference
12:45 a.m. San Francisco Fed President John Williams
1:30 p.m. Chicago Fed President Charles Evans, Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard on panel at Hoover Institution
1:30 p.m. Fed Chair Janet Yellen in webcast from Brown University at event on 125 Years of Women at Brown