By Laura Mandaro
U.S. stock investors, having just pocketed three weeks of gains,
may look overseas for reasons to add to their bets in the coming
week -- or take some money off the table.
Domestic news, from manufacturing data to the Federal Reserve's
attachment to keeping interest rates near 0%, has been good enough
to help stocks extend gains. But daily trading has lacked the
momentum that characterized big run-ups in the past year.
"What's been good recently is basically the lack of news," said
Jason Pride, director of investment strategy for Philadelphia-based
Glenmede, which manages about $18 billion.
During the Dow Jones Industrial Average's (DJI) eight sessions
of gains, which ended Friday, the blue-chip average never added
more than 50 points, or 0.5%, in a single day. Still, it closed the
week with a 1.1% advance, its third week of gains.
One risk to this extended run could come from China or other
fast-growing economies that are likely to raise interest rates
before the U.S., say strategists.
On Friday, a surprise rate increase by India's central bank
weighed on the U.S. stock market. The move renewed a simmering
anxiety about how the global economy will react as governments in
China, India and elsewhere raise interest rates, said Russ
Koesterich, a managing director at BlackRock, Inc.
"As they change policy, does that mean the liquidity tap is
being turned off?" he said.
European government finances could also ripple through stock,
currency and commodities markets. Perceived reluctance by European
Union members to support Greece have undermined the euro in the
past week, helping the dollar, and in turn, weighing on the price
of dollar-denominated commodities.
As European ministers meet next week in Brussels, any hint that
the European monetary union is under stress may again bolster the
dollar. The euro fell about 1.2% against the greenback last week,
helping pull the U.S. dollar index (DXY) up by 0.9%.
"There's some concern that if the E.U. doesn't step in, the case
for the euro may be weakened," said Brad Sorensen, director of
market and sector research at Charles Schwab. For stock investors,
however, the worries about a return to crisis-mode for the global
financial system have faded.
"Contagion hasn't happened," he said. "It's really a European,
Greek issue at this point."
The S&P 500 (SPX) ended the past week 0.9% higher. The
Nasdaq Composite (RIXF) added 0.3%.
Health care, Oracle
While macroeconomic events abroad could dominate sentiment,
several political and corporate actions could sway individual
stocks and sectors.
On Sunday the House is expected to vote on a $940 billion,
10-year piece of health-care legislation. The Democrat-backed bill
would expand coverage to 32 million uninsured Americans and stop
insurance company practices such as denying coverage to the sick.
Some opponents say the legislation would make it so expensive for
companies that it would hinder their ability to create new
jobs.
Health-insurance stocks such Aetna Inc. (AET) and Cigna Corp.
(CI) rallied Friday ahead of the vote. Stock investors may have
been expressing relief the legislation carried a lower price tag
and requirements than past versions.
"The bill going to Congress seems to be limited in terms of
fiscal impact or economic impact relative to what the original bill
was," said Glenmede's Pride.
Corporate earnings, as well as a new slate of mergers and
acquisitions, could also trigger the individual stock surges that
powered stocks such as Nike Inc. (NKE), and on the merger front,
acquirer Phillips-Van Heusen Corp. (PVH) last week.
"Some confidence returned to the market now that we've seen some
M&A activity," said Sorensen of Schwab.
Combined with economic data and the statement from the Fed
reiterating its commitment to low rates, "these are the little
positives that helped propel the market higher," he said.
Fourteen members of the S&P 500 will report quarterly
results, including Oracle Corp. (ORCL), Best Buy Inc. (BBY) and
some homebuilders.
The week starts off slowly, with Tiffany & Co. (TIF) on
Monday. But it heats up over the following three days: Adobe
Systems Inc. (ADBE), Carnival Corp. (CCL), Darden Restaurants Inc.
(DRI), Jabil Circuit Inc. (JBL) and Walgreen Co. (WAG) report
Tuesday.
General Mills Inc. (GIS), Lennar Corp. (LEN), Paychex Inc.
(PAYX), and Red Hat Inc. (RHT) are scheduled for Wednesday.
And Best Buy, ConAgra Food Inc. (CAG), McCormick & Co. (MKC)
and Oracle are on Thursday.
Most of those results are for the fiscal first quarter, a period
when the earnings growth rate is likely to return to a more
moderate level than in past quarters.
Companies in the S&P 500 are expected to post earnings
growth of 36%, says Thomson Reuters.
Economy, Fed talk
For U.S. economic data, the week gets going Tuesday. Existing
home sales likely dropped in February from the prior month, say
economists polled by MarketWatch.
On Wednesday, they expect a report to show durable-goods orders
rose last month, but at a slower rate, while new home sales
strengthened.
The takeaway from economic data in the past week "was a wash,"
said Glenmede's Pride, giving investors little too fret or get
giddy about.
If next week's data shows more of the same, more interest may
focus on speeches by several Federal Reserve officials, including
San Francisco Federal Reserve President Janet Yellen and Atlanta
Fed President Dennis Lockhart.
The past week's Fed statement "makes it seemed like the Fed was
more worried about the tenuous nature of this economic recovery
than about inflation," said Pride. His expectation about the next
week? Many of the Fed speakers "will sound fairly dovish."