Investors are expecting to hear some positive economic data this week that would point to continued momentum in the markets and could build on the strength of the past two weeks.
The benchmark S&P 500 index has rallied roughly 5 percent in the past fortnight, its best two-week run in a year, and is up about 4 percent from its Feb. 11 low. The gains are based on recent data that has diminished investor concerns over a recession and has shown oil prices stabilizing around $30 a barrel.
Nonfarm payrolls for February are scheduled to come in on Friday and are expected to show an increase of 193,000 jobs; the unemployment rate is forecast to hold at 4.9 percent. January's report showed slower job gains but rising wages and the low unemployment rate indicated the labor market remains firm.
The benchmark S&P 500 index has rallied roughly 5 percent in the past fortnight, its best two-week run in a year, and is up about 4 percent from its Feb. 11 low.
Manufacturing and Services Sectors
Also due this week are reports on activity in the manufacturing and services sectors from Markit, a data firm and the Institute for Supply Management. A report Thursday showed new orders for big-ticket durable goods also increased last month following their worst annual performance since the recession. Although manufacturing is expected to remain soft, the data is an important indicator of whether the sector is close to bottoming or will stage a reversal.
Services activity data will be also be in focus after an early reading last Wednesday from Markit pointed to the sector, which had been a positive factor in the economy, showing contraction in February for the first time since October 2013.
According to Art Hogan, chief market strategist at Wunderlich Securities in New York, "The services (report) is what you want to watch." Hogan believes that investors will readily accept the week report on manufacturing but a positive reading in the services sector would be most welcome.
Consumer Confidence Up
Renewed consumer confidence is also helping the U.S. markets. New data released on Friday showed consumer spending growing in January at the fastest pace in eight months as a strong job market and robust wage gains boosted Americans’ penchant to spend. Inflation also ticked higher, a positive sign for Federal Reserve officials considering whether the U.S. economy can withstand higher interest rates.
According to the Commerce Department, personal spending, which measures outlays on everything from smart phones to doctor visits, rose 0.5% in January from the previous month. Americans’ pretax earnings from salaries and investments increased at the same pace.
The department also said that gross domestic product advanced at a 1% seasonally adjusted annual rate in the fourth quarter, revising up its earlier estimate of 0.7%. That followed annualized growth of 2% in the third quarter and 3.9% in the second.
Inflation Up
Friday’s release also showed that the Federal Reserve’s preferred inflation measure--the price index for personal consumption expenditures—was up 1.3% from a year earlier, solidifying from an annual inflation gain of 0.7% in December. Inflation has run below the Federal Reserve’s 2% inflation target for nearly four years.
Core inflation is now higher than the Fed expected it to be at the end of this year, a development that could give the central bank confidence the U.S. economy can cope with less central-bank support to spur spending and investment.
This week’s positive economic data could prove bearish for stock markets with payroll data acting to dampen possibilities of continued gains on Wall Street. And with the mid-March meeting of the Federal Open Market Committee looming, investors are concerned of a greater chance that the Fed will move on rates sooner rather than later.
Oil prices are also a major factor for equities and a rise of more than 25 percent in U.S. crude CLc1 since Feb. 11 has been a key component in moving U.S. stocks off their 10-month low. Equities have been closely tied to movements in oil and an additional downturn in the commodity is likely to put pressure on stocks.
According to Hogan, when the economic data is stronger than the negative influence of oil, one will see a divergence between stocks and oil prices.