The prevailing trend in U.S. stocks could be higher next week if investor anxiety eases over the crisis in Ukraine and signs of weakness in the U.S. economy.
Investors will watch for further signs that poor weather may have played a role in recent weak economic data and dampening profit outlooks, which would underscore views that setbacks may be temporary.
Federal Reserve Chair Janet Yellen’s comments this week, which raised the possibility of an earlier-than-expected increase in interest rates, added another element of interest to the data.
Reports on U.S. consumer confidence and sentiment are due next week, along with data on new home sales and orders for durable goods.
The market, however, remains vulnerable to any escalation in global tensions over Ukraine, especially since the Standard & Poor’s 500 .SPX reached another intraday record high on Friday before ending lower after a bout of profit-taking.
“The trend is favorable unless it’s upset by world events, and weakening of the data both here and abroad,” said Bucky Hellwig, senior vice president of BB&T Wealth Management in Birmingham, Alabama.
“I would say right now, if you look at the scorecard of economic and global events, it looks a little better than it did a month ago.”
Stocks bounced back this week after losing more than 2 percent the previous week as the problems in Ukraine and worries about a slowdown in China curbed investors’ appetite for riskier assets.
The S&P 500 ended the week up 1.4 percent, its best weekly gain since February. For the year, the benchmark index is up about 1 percent.
President Vladimir Putin signed laws completing Russia’s annexation of Crimea, though Moscow said no other Ukrainian region would be subject to intervention.
The Fed was in focus this week, when the central bank made it clear it would rely on a wide range of measures in deciding when to raise interest rates, dropping the U.S. unemployment rate as its yardstick for gauging the economy’s strength.
“You just have so much indecision. Do you feel good about what Janet said? Do you feel bad? Do you feel good about the Ukraine? Do you feel bad?” said Drew Wilson, an analyst at Fenimore Asset Management in Cobleskill, New York.
“It just feels like you have a hard time getting momentum either way.”
WALLETS AND WARNINGS
Investors will get some information next week on whether consumers kept a tight grip on their wallets last month. The Commerce Department will release February data on U.S. personal income and consumption on Friday. Economists polled by Reuters have forecast slim gains from the previous month.
A final reading on fourth-quarter Gross Domestic Product will be released on Thursday.
“Hopefully some of the data is beginning to clear itself from some of the weather impacts, and we may get some better readings on how things are going,” said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors.
Negative profit outlooks for the first quarter have been increasing as well, with more companies sounding the alarm about possible problems related to this winter’s harsh weather.
Among them was General Mills (GIS.N), which missed sales and profit expectations this week and has warned on the current quarter. Its CEO said “severe winter weather dampened sales performance across the food industry.”<ID:ASB08H38>
Thomson Reuters data showed that 108 negative outlooks have been issued so far by S&P 500 companies, while only 16 gave positive ones.
But the ratio of negative outlooks to positive ones remains below that of the fourth quarter, which was the worst since at least the first quarter of 1996, according to Thomson Reuters data.
BANKING ON DIVIDENDS
Among stocks likely to post further gains next week are financials, which climbed this week following Yellen’s comments. She indicated that the first increase in interest rates could come in the first half of next year.
Most analysts in a Reuters poll after Yellen’s comments, however, still did not expect the Fed to begin raising rates until the second half of 2015.
Another supportive element for banks came from the Fed after Thursday’s close, when the central bank said 29 out of 30 major banks met the minimum capital hurdle in its annual health check.
The S&P financial index .SPSY gained 4.3 percent for the week, its best weekly percentage increase since January of 2013.
In the coming week, the Fed will announce on Wednesday which banks’ plans to pay dividends or buy back shares were approved.
“Regulators will sign off on the dividend increases, and if they get approved, that will help the momentum in the financial stocks,” Hellwig said.
Source : Reuters