The economy’s soft landing — in which economic growth slows but remains sustainable and avoids inflation — may need some cushioning before all is said and done. And Wall Street will be looking to the Federal Reserve in hopes that a suspension of interest rate hikes will provide it.
Fed Chairman Alan Greenspan will testify on Capitol Hill during Thursday’s trading session, discussing the state of the economy. And after last week’s release of several troubling economic reports, nervous investors will be listening very closely.
In the past, his comments have moved stocks practically minute to minute, depending on what he’s said.
Wall Street’s concerns about an economic slowdown were renewed after the Labor Department reported a sharp drop-off in job creation and other data showed a possible slowdown in the growth of the industrial and service sectors. Combined with oil prices that topped $55 per barrel on Friday, the economy could be in for a squeeze.
Investors, however, should remember that the jobs report, and most other monthly reports on the economy, have vacillated widely this year. If the data is averaged out over the first four to five months of the year, that soft landing appears to be intact. Job growth is still fairly strong, and economic growth appears to have slowed only modestly.
Interest rates: The pause that refreshes?
Greenspan, whose big-picture view of the economy is — or at least should be — insulated against the latest headlines and the market’s gyrations, has likely adopted the same stance. Nonetheless, the markets should pick up after last week’s losses if Greenspan can reassure Wall Street that the Fed plans to pause in its measured pace of interest rate increases.
Such a pause was forecast by Dallas Federal Reserve Bank President Richard Fisher, who said Wednesday the Fed was “in the eighth inning” of its rate hike policy. Given that there have been eight quarter percentage point rate hikes since June 2004, many on Wall Street took that to mean that the June 30 meeting could see the last of the rate hikes, at least for the short-term.
At least that’s what many on Wall Street are hoping for. Stocks ended last week lower after the jobs report renewed fears that the Fed’s rate hikes were slowing the economy too quickly, especially with high oil prices already acting as a drain on spending. For the week, the Dow Jones industrial average fell 0.77 percent, the Standard & Poor’s 500 index lost 0.23 percent, and the Nasdaq composite index dropped 0.21 percent.
Dearth of data until Thursday
Until Thursday, when Greenspan speaks, there will be a severe dearth of economic data and other news that could move the market. Expect trading volume to be lower than average and volatility higher, since it will take fewer transactions to move the market in a given direction.
The biggest report of the week, the state of the nation’s trade deficit, is due Friday from the Commerce Department. Economists expect the deficit to rise to $58 billion in April, compared to a surprisingly low $55 billion in March.
There are only a handful of companies reporting earnings in the week ahead, and very few of them will have the power to move the market in a meaningful way.
On Tuesday, supermarket chain Albertson’s Inc. is expected to report earnings of 27 cents per share, up from 15 cents per share in the year-ago period. The stock has tumbled 22.9 percent from its 52-week high of $27.07, reached June 24, 2004, closing Friday at $20.86.
Tax preparer H&R Block Inc. has been a relatively steady performer, rising 13.1 percent from its 52-week low of $45.13 on Oct. 25 to close Friday at $51.05. The company is expected to earn $3.55 per share for the quarter, up from $3.23 per share a year ago.
Also Thursday, after the session, Intel Corp. will give its highly anticipated mid-quarter update. While the Dow component does not give guidance on its expected earnings, it will give investors an idea on sales, which many Wall Street analysts believe could be better than expected. Intel is often a barometer for the technology sector as a whole, so a bullish report Thursday could lead to a boost for stocks on Friday.