By Sue Chang, MarketWatch
Yellen hints at summer rate hike
Memorial Day marks the unofficial beginning of summer, but
baseball and barbecues may have to take a back seat to Fed watching
for a while longer for investors who remain preoccupied with the
timing of the Federal Reserve's next rate increase.
The nonfarm payrolls report, a closely watched barometer of
growth, is likely to provide an important clue given the
increasingly hawkish tone of Fed officials with even Chairwoman
Janet Yellen embracing the possibility of higher rates.
"Strong jobs data is a sign that the economy is doing better and
that the chance of a rate hike is increasing," said Karyn
Cavanaugh, senior market strategist at Voya Financial.
That said, economists surveyed by MarketWatch are projecting the
economy to have created 158,000 new jobs in May, slightly below the
160,000 reported in April. The Labor Department will release May
jobs data on Friday morning.
"We think May payrolls could be weak and if we're right, this
would likely spark concern about the domestic outlook and foil the
Fed's hopes for a midyear hike," Paul Mortimer-Lee, chief economist
for North America at BNP Paribas, said in a note.
Mortimer-Lee expects payrolls to come in around 110,000 in
May.
"The Fed thinks first quarter's growth setback was just
temporary; payrolls as low as our forecast would seriously
challenge that view," he said.
The U.S. economy grew at an 0.8% annualized pace
(http://www.marketwatch.com/story/first-quarter-us-gdp-raised-to-08-2016-05-27)
in the first quarter, slowing from a 1.4% expansion in the fourth
quarter.
Consumer spending and core inflation data, both due on Tuesday,
could also move the stock market if they point to building
inflationary pressure, something the Fed won't be able to
ignore.
The S&P 500 climbed 8.96 points, or 0.4%, to close at
2,099.06 on Friday for a weekly advance of 2.3%. The Dow Jones
Industrial Average rose 44.93 points, or 0.3%, to finish at
17,873.22, up 2.1% for the week. The Nasdaq Composite added 31.74
points, or 0.7%, to close at 4,933.50, posting a weekly gain of
3.4%.
See:S&P 500 posts biggest weekly gain in 2 months
(http://www.marketwatch.com/story/caution-puts-lid-on-us-stock-futures-ahead-of-yellen-speech-2016-05-27)
Fed Watch
Yellen surprised market participants on Friday by suggesting
that a decision to tighten the monetary policy is possible this
summer
(http://blogs.marketwatch.com/capitolreport/2016/05/27/live-blog-and-video-of-janet-yellen-interview/).
"It's appropriate--and I have said this it the past--for the Fed
to gradually and cautiously increase our overnight interest rate
over time--and probably in the coming months such a move would be
appropriate," she said in a discussion with Harvard Professor
Gregory Mankiw after receiving an award from the university's
Radcliffe Institute for Advanced Study.
The stock market will have a further idea of how determined the
Fed is to act when another dove, Gov. Lael Brainard, speaks on
Friday.
Technical Analysis
Katie Stockton, chief technical strategist at BTIG, believes the
market doesn't have much energy to digest the selling pressure that
is expected to emerge soon in the wake of the recent rally.
"While short-term momentum has improved, we do not think it will
be enough to generate a decisive breakout above resistance near
2,090-2,100," she said in a note.
In the longer term, there is more upside potential with stocks
having bottomed in February when the S&P 500 was on a
three-month losing streak, according to Jeffrey Saut, chief
investment strategist, at Raymond James.
"I think the real surprise for everyone would be to see the
S&P 500 pop to a new all-time high, suggesting a price target
of 2,300 for the S&P 500," he said.
Earnings
There will be very little earnings-related action with only
Michael Kors Holdings (KORS) and Broadcom Ltd. (AVGO) slated to
announce results.
With 98% of S&P 500 components having reported so far,
first-quarter earnings fell 6.7%, marking four straight quarters of
year-over-year contraction in profits, according to FactSet.
Crude Oil
The Organization of the Petroleum Exporting Countries will meet
on Thursday in Vienna
(http://www.marketwatch.com/story/what-50-oil-means-to-producers-and-the-fed-2016-05-27)
although no dramatic announcement on a production cut is
expected.
Still, investors will closely watch for any OPEC developments
that could potentially drive oil prices higher which the Fed will
view as a sign that the economic recovery remains on track.
Oil prices briefly touched $50 during the week but July WTI
crude fell 15 cents, or 0.3%, to.settle at $49.33 a barrel on
Friday.
(END) Dow Jones Newswires
May 28, 2016 08:01 ET (12:01 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.