By Nick Godt
With solid monthly gains under its belt, the market will turn
next week to the traditionally slow month of August with investors
now keying on the July employment report for further clues about an
economic recovery.
"For the week ahead, it's all going to be about jobs," said
James Paulsen, market strategist at Wells Capital Management.
Ahead of the government's tally of monthly jobs figures on
Friday, the market will get an early sense of private-sector
employment on Wednesday, when ADP puts out their monthly figures.
On Thursday, will also be weekly jobless claims, which provide a
picture of unemployment on a more regular basis.
"If we get any sense that the job market is not falling as much,
then this could open the door to predictions that we could have job
creation by the fourth quarter," Paulsen said.
Unemployment remains the most determining factor in the
recession, preventing the market to fully rejoice in signs that the
economy is, if not improving, deteriorating at a much slower
pace.
The economy is expected to have lost 275,000 jobs in July while
the unemployment ticked higher to 9.7% from 9.5%, according to the
average forecast of economists surveyed by MarketWatch. In June,
467,000 jobs were lost, much worse than economists had
expected.
On Friday, stocks finished a lackluster session little changed.
Although the government reported that gross domestic product fell
at a slower-than-expected rate of 1% in the second quarter,
prior-quarter revisions and worries about weak consumption clouded
the picture.
The Dow Jones Industrial Average (DJI) rose 17 points, or 0.2%,
to 9,171. The S&P 500 index (SPX) gained 0.7% to 987, while the
Nasdaq Composite (RIXF) fell 5.8 points, or 0.3%, to 1,978.
The gains were better for the week, with the Dow up 0.9%, the
S&P 0.8%, and the Nasdaq up 0.6%.
A happy July
Gains were even better for the month, with the Dow rallying 8.6%
to mark its best monthly gain since Oct.2002 and its best July
since 1989. The S&P 500 rose 7.4% for the month and the Nasdaq
gained 7.8%.
"This is certainly impressive," said Michael Sheldon, market
strategist at RDM Financial Group. "The earnings season has had a
big role in helping the market over the past few weeks."
According to RDM Financial, 75% of companies that have reported
earnings so far have topped expectations.
"The bar was lowered so much because of the sharp downturn in
the economy over the past few months," Sheldon said. "Now the bar
[for earnings and economic reports] has been raised somewhat as the
market starts to price in a somewhat stronger rebound in the second
half."
Critics say that corporations have topped expectations mostly
out of cost-cutting measures, including massive layoffs that have
helped profits but not revenue.
"I think it's important to take a step back and realize that the
market is rejoicing in what is corporate anorexia," Bruce Falbaum,
a managing partner at Seven Bridges Management LP, a firm investing
in distressed companies. "You cannot starve yourself to good
health. Firms need a real revenue stream. And they've been cutting
so many workers, who are also consumers too that won't be
consuming."
Last month, a disappointing June jobs report set the tone for
several weeks of selling the market.
But current market bulls say these concerns won't really affect
the market until later, as the forward-looking market tries to
assess the shape of the recovery in 2010.
And contrarian investors, such as Wells' Paulsen, expect that
continuing doubts about the economy and profits will help the
market lower the bar, providing for more upbeat surprises going
forward.
"The market has advanced against a predominance of doubt out
there, in spite of evidence that things are improving," he said.
"More than anything, the driver for the market remains the news
from Wall Street, main street or from earnings."
Data stream
On Monday, the Institute for Supply Management will report on
manufacturing activity in July. That same day, auto manufacturers
will report domestic auto sales for the past month.
On Tuesday, will be the personal income data for June, as well
as the personal consumption expenditure index for that same
month.
On Wednesday, the ADP employment survey for July, followed by
factory orders for June, and the non-manufacturing index for
July
Among S&P 500 earnings due to report on Monday are: Clorox
(CLX), Loews (L), MGM Mirage (MGM), Marathon Oil (MRO), Tyson Foods
(TSN), Anadarko Petroleum (APC), Chesapeake Energy (CHK), and Pulte
Homes (PHM).
Tuesday will bring results from D.R. Horton (DHI), Duke Energy
(DUK), Tenet Healthcare (THC), Avis (CAR), Kraft Foods (KFT), and
Whole Foods Market (WFMI).
On Wednesday will be results from Ambac Financial (ABK), Devon
Energy (DVN), Polo Ralph Lauren (RL), Cisco Systems (CSCO), Murphy
Oil (MRO), Procter & Gamble (PG), Sunoco (SUN) and XTO Energy
(XTO).
On Thursday, Beazer Homes (BZH) and MBIA (MBI) will report,
followed by Liberty Media on Friday(LINTA).