Jobs Report Looms in Busy Coming Week

Shanthi Bharatwaj

NEW YORK (TheStreet) -- With most of the blue-chip earnings reports out of the way, Wall Street's attention will swing back to the macro headlines in the coming week, headlined by the all-important April jobs report on Friday.

Stocks are coming off a positive weekly performance, buoyed by blockbuster earnings reports from Apple(:AAPL) and Amazon(:AMZN) and better-than- expected housing and consumer sentiment data.

Concerns about Spain's intensifying debt crisis were set aside, if only temporarily.

The Dow Jones Industrial Average rose 1.5% over the week, while the S&P 500 and the Nasdaq climbed 1.8% and 2.3% respectively.

Next week will bring key reports on manufacturing and consumer spending then culminate in the Labor Department's Employment Situation report on Friday.

The economy added only 120,000 jobs in March, about half the gains posted in the previous three months, disappointing investors who were hoping for continuing signs of a strengthening economy.

Recent economic reports have been more mixed, with jobless claims data and first-quarter GDP coming in weaker-than-expected, but consumer sentiment and housing data delivering positive surprises.

"The big debate is how much of the recent gains were weather-induced and whether there will be payback in the next few months," said Dan Greenhaus, chief global strategist at BTIG.

Federal Reserve Chairman Ben Bernanke said at press conference last week that the unusually warm weather may have inflated the job numbers for January and February, making March's soft report artificially weak.

Given how hard it is to tell how much weather is a factor in the data, Greenhaus said he believes investors should focus on a two-to-three month trend rather than a single month's report.

Investors may also want to adjust their expectations about the economic recovery, according to the analyst. "A robust, meaningful expansion in the economy is just not unfolding. The less investors expect that to unfold, the less likely they are to be disappointed," Greenhaus said.

Still, the market will be parsing every piece of data for clues about how the Fed will proceed with monetary policy after this past week's meeting of the Federal Open Market Committee revealed some tensions within the central bank.

The Fed sent something of a mixed message to investors last week, revealing a more hawkish view of the economy, yet continuing to show a bias towards a highly accommodative monetary policy.

Several Fed officials will be speaking next week, which is bound to add to the market chatter about quantitative easing, especially as economists and market pundits analyze speeches for more signs of dissent within the Fed.

With QE3 theoretically still on the table, the market may end up cheering some bad news, according to Jeff Sica, President and Chief Investment Officer of SICA Wealth Management.

"The markets are not going to embrace moderately improving economic numbers. They are going to embrace numbers that are somewhat negative," Sica said. "Markets have become dependent on stimulus and have been liquidity driven. Next week will be decisive in determining how dependent the market is on liquidity and how confident investors are in a liquidity-driven market. That will bring with it bouts of volatility."

Earnings reports will continue to drive stock-specific action, with some high profile names such as AIG(:AIG), BP(:BP), Pfizer(:PFE) and Mastercard(:MA) reporting next week.

Most of the big names that have reported, so far, have managed to beat earnings estimates, although the bar entering into the earnings season was set fairly low.

Companies have cited concerns about Europe and a possible slowdown in China in their guidance, but on the flip side, companies such as Caterpillar(:CAT) have pointed to strength in the United States.

"There have been pockets of weakness, but on balance this earnings season looks strong, the guidance appears reasonable and equities as an asset class are not expensive nor over-owned," said Tim Holland, portfolio manager at Tamro Capital Partners.

Holland believes the markets have been spooked by the deterioration in Europe and are beginning to expect a repeat of the summer of 2010 and 2011 once again. But he thinks there are a few factors that suggest "this time is different."

One, while the Fed was highly accommodative last year, the ECB and other central banks were not. Now almost all central banks have their foot back on the pedal, Holland said.

Two, the environment for jobs, despite the weaker report in March, is much better than last year.

And three, housing was still a headwind last year. But this year it is "neutral" at worst and at best a "tailwind for the consumer".

Holland pointed to the recent breakout in homebuilder stocks and said he is convinced that there is no "headfake" in housing but a real turnaround.

"Bottomline, I am really constructive on U.S. stocks," he said.

--Written by Shanthi Bharatwaj in New York.

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