Weekly US Markets Update and OutlookU.S. stocks set to face a less-friendly Fed
First-quarter GDP, employment report, earnings could test market
MarketWatch:U.S. stocks will face renewed pressure next week, with investors facing not only another heavy week of earnings, but also key data that may confirm the U.S. economy is in recession and a Federal Reserve increasingly expected to pause its campaign to lower interest rates. On Wednesday, the market will deal with the first reading of first-quarter gross domestic production, which may show negative growth, along with the Fed's decision on interest rates. The market currently expects the central bank to cut its key rate by a quarter-percentage point and to signal a pause. Friday also will bring the all-important April jobs report.
"Next week will be a make-or-break week," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "Are we in a recession? Is the Fed going to be one- and done? Either way, it will give us a feel for where we're going in the short term." A late turnaround on Friday helped stocks finish the day and the week higher. This marked the second week of gains in a row, and kept the market on the uptrend that began in mid-March, after the near-collapse and subsequent bailout of investment firm Bear Stearns Cos.The Dow gained 42 points, or 0.3%, to 12,891, giving it a 0.4% gain on the week. Blue chips were supported by a smaller-than-expected loss at American Express Co , shares of which gained nearly 6%. Overseas profits helped cushion losses in the credit-card giant's U.S. operations, echoing a now-familiar tone of this earnings season. The broad S&P 500 Index added 9 points, or 0.7%, to 1,397, leaving it 0.5% higher on the week. But the technology-laden Nasdaq Composite Index fell 5.9 points, or 0.3%, to 2,422, which is up 0.8% from last Friday.
Software giant Microsoft Corp. disappointed the market with revenue for the previous quarter and its outlook for the next falling short of Wall Street's. " Overall, multinationals report that losses related to the weakening U.S. economy are being somewhat offset by international sales. A weak dollar has made U.S. goods cheaper for foreign consumers. Multinationals' results also benefit from translating overseas revenue into weaker dollars.
Earnings for S&P companies are now expected to have fallen 14.1% in the first quarter from the year earlier, a slight improvement from forecasts of a 14.6% drop last week. Results at ailing financial firms are weighing on overall results, with the sector expected to post a whopping 70% drop in profits from the year earlier.
Turning to oil, crude surged again Friday, gaining more than $2 after reports that a U.S. cargo ship fired at two unidentified boats in the Persian Gulf. The barrel ended at $118.52, gaining 1.6% on the week. The central bank is widely expected to cut its key rate by a quarter-percentage point to 2% on Wednesday. It's also increasingly expected to signal in its statement that it will pause, at least for now. Given improved sentiment in financial markets, central bankers are now believed to have grown more concerned about a surge of inflation in energy, food and commodity prices. Expectations of lower rates have put heavy pressure on the dollar since last summer, but the greenback appears to have stabilized somewhat recently, along with expectations that the Fed's job is done.
Yet the market's reaction to the "one-and-done" scenario might well depend on both the estimate of first-quarter gross domestic production and the April employment report. "If the advance GDP comes in as a positive number, then the market will be wiling to accept it," said Mendelsohn of Windham's Financial. "If not, they won't. It's the same for the employment numbers." Economists surveyed by MarketWatch expect no growth for the first quarter. Meanwhile, the economy is expected to have shed another 85,000 jobs in April.
KLSE Update and Outlook
I Capital on Weekly KLSE Composite Index: The index has staged a rally for the third consecutive week. Its DMI is climbing up slowly and its MACD is also starting to move the same way, suggesting that the index could be in the early process of recovery. A successful penetration of the 50-week moving average at the 1,310-level will see more positive confirmation. Though the sentiment is improving gradually, the volume must expand more substantially because it is vital for the rally be upheld.
* Our country begins her 12th Parliament tomorrow. It will be interesting as this is the first time BN does not hold a 2/3 majority. How the politicians perform will ultimately affect the well being of the people and country. Ultimately, equality and fairness, strategic and longer term views with check and balance as we move forward is the best gift the politicians can bring to us, the "citizens or the boss".
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