It’s not too common for the bearing of the stock market to rest on just one number, but that’s the case this week according to most Wall Street analysts, who say the near-term performance of Wall Street will likely hinge on a key piece of economic data due before Friday’s open: the government’s jobs report for March.
That’s not to say that this week will be a humdrum one for Wall Street. It draws to a close the first quarter of 2004, which usually brings with it some volatility as portfolio managers shuffle their stock holdings. And a decent amount of economic reports are due for release, including data on U.S. factory orders, national manufacturing activity, consumer confidence and construction spending.
But after three months of disappointing job growth and the stock market struggling to find its footing since it began a sharp retreat early this month, Friday’s jobs report is going to be the market mover of the week said Peter Cardillo, chief strategist at New York-based brokerage firm S.W. Bach.
“We’ll get some earnings pre-announcements during the week a bunch of economic news, and they could move the market, but the granddaddy of all economic data is the monthly jobs report and this week I think the market will take its cue from it,” Cardillo said.
The March jobs report could be a major catalyst for the near-term direction of the stock market, analysts said.
Speculation that employment growth is not strong enough to support consumer spending — a force that powers two-thirds of U.S. economic growth — has been one of the main issues nagging stock investors in recent months.
“The employment report has become the lynchpin for everything,” said Steve Stanley, chief economist at RBS Greenwich Capital in Greenwich, Ct.
“We’ve all been disappointed by the jobs data we’ve seen over the last few months and many economists are taking an agnostic stance toward the job market,” Stanley continued. “So I think that if we get an employment number that is above expectations it will be a seminal event for the stock market.”
A disappointing number could drive down stock prices, Stanley added.
Stanley is optimistic about the employment outlook. He expects this Friday’s payrolls report to show 115,000 jobs were added to U.S. payrolls in March, slightly above the consensus estimate for 103,000 jobs after February's rise of only 21,000.
“I’m still reasonably optimistic we’ll get good job growth in March,” Stanley said, noting that the jobs market is likely to see more gradual job growth than most economists expect, with payrolls building slowly over a few months.
Investor frustration over a weak February jobs report one month ago triggered the stock market’s recent bout of profit-taking, which has dragged the Standard & Poor’s 500-stock index, a broad market measure, down just over 4 percent in what some on Wall Street are calling a much-needed correction after a near yearlong rally that has driven the index up over 40 percent.
Other factors have weighed on investor sentiment this month and filled what has essentially been a news vacuum for Wall Street. These factors include the deadly train bombings in Madrid on March 11 and fears of an increase in tensions in the Middle East after the killing of Hamas founder Sheikh Ahmed Yassin by Israeli troops.
Still, despite these troubles, some market observers like Steve Stanley are not too worried by the market’s recent decline prices.
“There’s a little bit more nervousness in the market these days,” Stanley said. “But we’ve had such a great run-up over the last year that people were asking when we’d ever retrace some of the ground, and now that we’ve seen that happen the issue really is where the market goes from here.”
Henry Cavanna, senior portfolio manager at Cavanna Capital Management, thinks the upcoming first-quarter earnings season could provide the tailwind the market needs to drive it higher.
“We’re about 5 percent below the February peak, so we have healthier stock prices,” Cavanna told CNBC. “We have a lot of headwinds, but I’m banking on a tailwind: earnings. That’s the fuel we need here and it will remind investors we have an expanding economy.”
The outlook for first-quarter earnings reporting season, which begins in earnest in about a week, is rosy.
In the weeks leading up to earnings reporting period, when companies normally let Wall Street know if they will exceed or miss analysts’ targets for the quarter, of the 1,030 companies that have issued statements about their results 32 percent said they will exceed analysts’ forecasts, 15 percent said they would be on target, and 53 percent said they would miss estimates, according to earnings research firm Thomson First Call.
That puts the ratio of positive to negative earnings pre-announcements at 1.7, below the long-term average of 2.3, according to Thomson.
But some investors are concerned that the market's strong rally over the past year means stocks have already finished factoring in all the positive news that the economy had to offer.
With this in mind, stocks may be vulnerable this week to geopolitical concerns, the U.S. dollar's continued weakness and the Wednesday’s meeting of ministers of the Organization of Petroleum Exporting Countries (OPEC). With oil prices near 13-year highs, OPEC will decide this week whether to move ahead with a planned output cut.
The blue-chip Dow Jones industrial average and the tech-rich Nasdaq Composite index both finished last week with modest gains, ending a two-week string of declines.
For the week, the Nasdaq Composite climbed 1 percent and the Dow rose 0.3 percent. The S&P 500 index, however, slipped 0.2 percent, recording its third straight week of losses.
Reuters contributed to this story.