The stock market appears to be regaining its health after a weak first quarter, but a full recovery may be far off if upcoming data suggests inflation is a growing concern for the Federal Reserve.
Before this week’s inflation data comes in, though, stock market investors will likely react Monday to the stronger-than-expected employment report released by the Labor Department on Friday, a stock market holiday. The data showed nonfarm payrolls rose by 180,000, higher than the 135,000 that had been expected. The nation’s unemployment rate fell to 4.4 percent, a five-month low.
Bond prices, which move in the opposite direction from yields, fell sharply in a holiday-shortened session Friday on the prospects that the economy is healthier than some had envisioned.
The employment figures seemed to underscore a notion that while the economy is cooling, it isn’t hurtling toward recession. In addition to the jobs report, recent data have shown consumer spending is climbing, sales of existing homes are holding up and that the manufacturing and service sectors are expanding slowly.
Still, investors fear high inflation could prevent the Fed from lowering interest rates later this year, or even prompt a rate hike. Last month, stocks soared after the Fed released a statement that appeared to open up the possibility of lower rates; this Wednesday, when minutes of its most recent meeting are released, stocks could take a hit if they suggest the central bank is more anxious about inflation than it had let on in.
The Labor Department’s Producer Price Index, which measures the cost of wholesale goods, will also offer clues about the pace of inflation. The March index is expected to come in at 0.6 percent on Friday, after rising 1.3 percent in February. Analysts forecast that the core index, which strips out food and energy prices, will rise 0.2 percent for March, after advancing 0.4 percent in February.
The Fed has kept rates on hold since August. A rate cut could boost consumer spending and aid the ailing housing market by making mortgages cheaper.
Last week, signs that U.S. consumers are keeping home sales afloat, despite struggling subprime mortgage lenders, encouraged investors. The Dow Jones industrials rose 1.67 percent for the week, the Standard & Poor’s 500 index advanced 1.61 percent and the Nasdaq composite index rose 2.05 percent.
Other economic data
On Tuesday, Philadelphia Fed President Charles Plosser plans to speak at the University of Delaware.
Then, on Wednesday, Chicago Fed President Michael Moskow is scheduled to give a speech on the outlook for the economy.
On Thursday, the Commerce Department reports on import and export prices for March.
The Commerce Department will report on the February trade balance on Friday. Analysts predict the gap will widen to $60.5 billion from $59.1 billion the previous month.
Friday also brings the University of Michigan’s preliminary consumer sentiment index for April. The market is forecasting a reading of 88.0, down slightly from 88.4 in March.
Though earnings season doesn’t begin in earnest until next week, this week’s reports could set the tone, leading investors to re-evaluate their portfolios if they come in worse than expected.
Alcoa Inc. starts earnings season with the release of its first-quarter report on Tuesday. The market predicts the aluminum producer will report profit of 75 cents per share. The company closed Thursday at $34.59. The stock’s 52-week range is $26.39 to $36.96.
On Wednesday, technology companies Genentech Inc. and Research in Motion Ltd. release their quarterly earnings. Genentech is expected to report profit of 67 cents per share; the biotechnology company ended the week at $83.40. Its 52-week range is $75.58 to $89.73.
The market forecasts profit of 99 cents per share at Research in Motion; the BlackBerry maker closed at $145.77 Thursday; it traded from $61.03 to $147.05 in the past 52 weeks.
On Thursday, Rite Aid Corp. releases its fiscal fourth-quarter profit, which is expected to come in at 2 cents per share. The nation’s third-largest drugstore chain closed Thursday at $6; its 52-week range is $3.90 to $6.40.
General Electric Co. reports its first-quarter earnings on Friday. Analysts are forecasting profit of 44 cents per share at the conglomerate. The company finished last week at $35.02. In the past 52-weeks the stock has traded from $32.06 to $38.49.