For better or worse, the U.S. economy is back on the top of the stock market's watch list, with the European sovereign debt crisis a close second.
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A surprisingly strong jobs report Friday came at the end of a week of spotty economic news and worries about global growth. A dramatic selloff in commoditiestook its toll on equities, but stocks moved higher again when the government report showed that 244,000 jobs were added in April.
Crude oil was down nearly 15 percent, gasoline futures fell 9 percent, gold slid 4 percent, and silver, which led the decline, was down 27 percent.
The sovereign debt crisis was back in focus Friday, pushing down an already weakened euro. The euro took a last leg down after a German media report, later denied, said Greece was contemplating exiting the euro zone and that the European Commission was holding a Friday night meeting in Luxembourg to discuss it. European officials denied the report, but still the markets are keeping a close eye on Greece's debt issues, which are far from resolved a year after its bailout. The euro lost 3 percent on the week to 1.4551, and the dollar index was at 74,92 late Friday, up 2.7 percent.
U.S. economic reports in the coming week focus on the consumer and inflation, with retail sales Thursday and producer and consumer prices Thursday and Friday. The weekly jobless claims report on Thursday will also be important after a surprising jump to 474,000 claims this past week, the worst number since last August.
There are also a few big earnings, like Wal-Mart , Disney , Macy's , Cisco , Nissan and Petrobras .
Fed Chairman Ben Bernanke testifies Tuesday before a Senate panel on Dodd-Frank bank reform, and on Monday and Tuesday, Obama Administration officials meet Chinese officials in Washington for the third meeting of the U.S.-China Strategic and Economic Dialogue.
Whither Stocks
BlackRock Vice Chairman Robert Doll said he thinks the stock market is in for a period of consolidation, while investors work through the dual concerns of economic sluggishness and rising energy costs.
"The pace of increase at minimum will slow and maybe we go sideways," he said. Doll said while the jobs picture is turning in a positive direction, the deceleration in the economy, evident in weak first quarter GDP of just 1.8 percent, is a concern.
"It's not only that commodity prices are correcting. The dollar is correcting by going up. Movement in the other direction, in my mind, is way overdue. It doesn't mean commodities made a peak and will keep coming down. The commodities are among the most volatile things out there and they can have vicious swings in either direction without much rhyme or reason."
The Dow in the past week lost 1.3 percent to 12,638, and the S&P 500 lost 1.7 percent to 1340. The Nasdaq fell 1.6 percent to 2827, and the biggest loser was the Russell 2000, off 3.7 percent to 833. The CBOE's volatility index, the VIX , rose 25 percent for the week to 18.37.
Oil prices plunged, finishing the week at $97.18 per barrel, down $16.76, in the biggest weekly dollar loss since oil began trading on the Nymex in 1983.
"I don't think we see substantially higher (stock) prices until we get clarity on the economy and oil prices," Doll said, adding the period of consolidation could be weeks, even months. The economy can handle oil prices at current levels, but not if they keep rising, he said.
"I don't want to minimize how strong corporate earnings have been...We have these cross currents, which is why I don't want to get too negative," Doll said.
Citigroup economist Steven Wieting also sees rising oil prices as a major concern, and he will be watching consumer sentiment, released Friday morning, to see if it shows a consumer reaction to rising gas prices. "We have been definitely concerned about the speed at which crude has been rising...We think it will damage activity in the quarter," he said.
"This May and June period we're still going to spend a lot more on gasoline than we have in the first part of the year. We're going to have some narrowing of the breath of the expansion in the near term. The correction in commodities is helpful...it mitigates the negative impact," he said.
Doll said the correction was overdue. "It's not only that commodity prices are correcting. The dollar is correcting by going up. Movement in the other direction, in my mind, is way overdue. It doesn't mean commodities made a peak and will keep coming down. The commodities are among the most volatile things out there and they can have vicious swings in either direction without much rhyme or reason," he said.
RBS chief foreign exchange strategist Robert Sinche said the markets may now be decoupling from the risk trade, where investors sold dollars and snapped up commodities, commodity-linked currencies and other risk assets. "I don't think it's going to be all about the dollar. We've gone through a period where it was all about the dollar, between the amount of dollar shorts that were put in the market and had to be corrected, and the fact that week by week we get closer to the end of QE2...that probably makes these currency decisions and other market decisions rather than blanket decisions. We think domestic fundamentals matter again," he said.
QE2, a Wall Street term for the Fed's quantitative easing program, is set to expire at the end of June. Under the program, the Fed has been purchasing $600 billion in Treasury securities, which has been credited with lifting the stock market and other risk assets and driving down the dollar.
"We still think the dollar's got some softening to it," Sinche said.
What Else to Watch
Economic reports in the week ahead also include trade data, with wholesale trade and import prices reported Tuesday and international trade Wednesday. Business inventories are reported Thursday. The NFIB small business survey is released Tuesday, and could be interesting since the jobs portion of the report showed a pickup in firings and a decline in hiring intentions in April.
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A trader at the New York Stock Exchange.
The Treasury auctions $32 billion in 3-year notes Tuesday; $24 billion in 10-year notes Wednesday and $16 billion in 30-year bonds Thursday.
Earnings Central
Monday's earnings reports include food producers Sysco and Tyson, Activision Blizzard , Sotheby's, Churchill Downs and Stifel Financial. On Tuesday, Dean Foods reports, as does Fossil, International Flavorsand Fragrances, Wendy's/Arby Group and JA Solar. Disney reports after the closing bell that day.
Arcelor Mittal, Toyota, Macy's and Teva report Wednesday morning, and Cisco and Symantec report after the closing bell.
Allianz, Kohl's , Nissan, Precision Castparts and Tim Horton report Thursday morning, and Nordstrom, Sun Power, and Nvidia report after the bell.
Agilent, NTT and Petrobras report Friday.
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