Sunday July 2, 10:33 PM
Inflation and jobs data to drive stocks
By Chris Sanders
NEW YORK (Reuters) - If the U.S. economic numbers show inflation is contained and no major companies warn of poor results in the coming earnings season, stocks could rise in the holiday-shortened week ahead.
Among the economic data, investors will focus on the June non-farm payrolls report and anything with a price component that will shed light on the pace of inflation.
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Monday kicks off the first trading week of July, with the potential for the number of earnings pre-announcements to pick up, which could act as one of the main drivers for equities.
"If we don't get any, or many, pre-announcements, that will be seen as being positive -- it all depends on who is saying what," said Sam Rahman, a portfolio manager with Baring Asset Management in Boston.
Aside from a focus on inflation and a lack of earnings reports to give the market direction, the week's trading could be volatile due to a lack of market participants.
"There will be a little bit of volatility because most of the world will be on vacation," said Brian Williamson, a vice president in equity trading at The Boston Co. Asset Management.
The New York Stock Exchange will close early at 1 p.m. (1700 GMT) on Monday ahead of the Independence Day holiday on July 4. Trading will resume on Wednesday morning.
A TOUGH QUARTER
The second quarter was not kind to the stock market. Only the blue-chip Dow Jones industrial average managed to finish the second quarter with a gain -- ending up 0.37 percent. But the Nasdaq Composite Index slid 7.17 percent, while the Standard & Poor's 500 Index fell 1.90 percent.
And the month of June was no honeymoon for stock investors. The three major U.S. stock indexes finished the month about where they started it, with the Dow down 0.16 percent for June alone, while the S&P 500 inched up 0.01 percent and the Nasdaq declined 0.31 percent.
For the year so far, the Dow is up 4.04 percent and the S&P 500 is up 1.76 percent, while the Nasdaq is down 1.51 percent.
On Friday, U.S. stocks ended lower in a volatile trading session as weaker-than-expected data on Chicago-area manufacturing offset hopes for better prospects for General Motors Corp. .
For the week, stocks rose, with the Dow up 1.5 percent, the S&P 500 up 2.1 percent and the Nasdaq up 2.4 percent.
PROFITS AND INFLATION
Looking ahead, second-quarter earnings are now forecast to grow 9.5 percent, according to Reuters Estimates.
With 21 S&P 500 companies reporting results through last week, 81 percent have beaten Wall Street's projections, while 14.3 percent have missed forecasts, according to data compiled by Reuters Estimates.
But after the Federal Reserve raised the benchmark federal funds rate a quarter of a percentage point on Thursday and toned down its previous warnings about inflation and the possible need for further rate increases, inflation is still on investors' minds.
"Now that we are past the Fed meeting, between now and the next one in August, what will drive the stock market is inflation," said Anthony Chan, managing director and chief economist at JPMorgan Private Client Services in New York.
This coming Friday, "we'll have the monthly jobs report, but guess what? People will be looking at the wage component of the report. That's what the Fed is paying attention to," Chan said.
June non-farm payrolls are forecast to have added 155,000 jobs, according to economists polled by Reuters. Average hourly earnings rose 0.3 percent, the Reuters poll showed. The unemployment rate is likely to hold steady at 4.6 percent.
"We all know that the economy is slowing, but the question still out there is inflation," Chan said.
Concerns about energy costs will keep investors watching the price of crude oil. On Friday, U.S. crude oil for August delivery rose 41 cents to settle at $73.93 a barrel -- up $3.06, or up 4.3 percent, for the week -- on strong gasoline demand at the pump before the holiday weekend.
What the prices-paid portion of the Institute for Supply Management's index on manufacturing growth says about the inflation picture also will garner investor attention this week. The ISM's June manufacturing report will be released on Monday, followed on Thursday by the ISM's June survey on the non-manufacturing, or services, sector.
A Reuters poll calls for the ISM manufacturing index to edge up to 55.0 in June from 54.4 in May, while the ISM's services index is forecast to slip to 59.0 from 60.1 in May.
On Monday, U.S. domestic car and truck sales for June will be released. On Wednesday, it's time for data on monthly factory orders and revised data on durable goods orders. On Thursday, the weekly data on first-time claims for unemployment benefits will be released.
The holiday break will delay the release of weekly mortgage market data by one day, to Thursday.
(Wall St Week Ahead runs weekly. Questions or comments on this column can be e-mailed to: chris.sanders(at)reuters.com)
