Wall Street has been stewing in uncertainty over the economic impact of hurricanes Katrina and Rita, but a new batch of data due in the week ahead will help clarify the situation.
The market rallied last Thursday as investors felt stocks were oversold on concerns about the storm’s aftermath; there was no real news to support the advance. Nobody really knows the effect the hurricanes will ultimately have on the nation’s long-term economic prospects.
For the week ahead, that means an increased chance of high volatility as the various reports come out. The Labor Department’s job creation report, due Friday, will be of particular interest given that more jobs usually translates into more disposable income, which helps our consumer-driven economy.
If the jobs number is lower than expected, that could cause the market to give up the gains from last week — if stocks hadn’t already moved lower earlier due to high oil prices, other poor economic data and the expected raft of companies issuing reduced earnings forecasts.
Last week, that stronger consumer sentiment led to modest gains. The Dow Jones industrial average added 1.43 percent, the Standard & Poor’s 500 gained 1.11 percent and the Nasdaq composite index rose 1.65 percent.
Industrial-output measure due
The Institute for Supply Management will give investors a taste of the post-Katrina economy with their September indexes. On Monday, the ISM will release its manufacturing index, a measure of the nation’s industrial activity, which is expected to come in at 52, down from 53.6 in August.
And Wednesday, ISM will release its services index, which measures the health of the nation’s booming service sector. The index is expected to come in at 59 for September, off considerably from 65 in August.
The market’s focus will fall squarely on the job creation report by week’s end. Economists expect the economy to have lost 172,000 jobs in September, all of which is attributable to the hurricanes along the Gulf Coast. A better number could give the markets a lift, however.
Earnings: Costco, YUM Brands
Only a handful of companies release earnings reports this week, but those that do will be key barometers for their sectors. Costco Wholesale Corp., the discount retailer is expected to earn 65 cents per share, up from 62 cents per share in the third quarter of 2004, when it releases earnings Thursday morning. The stock has held up better than many other retailers, but has still dropped 14.6 percent from its 52-week high of $50.46 on Nov. 5, 2004, closing Friday at $43.09.
Fast-food company YUM Brands Inc., parent of chains including Pizza Hut, Taco Bell and KFC, will release earnings after Wednesday’s session. YUM has done well for the year despite a general falloff in consumer spending, up 20.9 percent from its 52-week low of $40.03 on Oct. 1, 2004, closing Friday at $48.41.
The company is expected to earn 70 cents per share, up from 61 cents per share in the year ago quarter.
Auto, retail sectors
The first week of the month is particularly busy for the auto and retail sectors. The nation’s auto makers announce their car and truck sales for September on Monday, which could be slightly lower despite the deep discounts and incentives the Big Three have been offering.
In addition, the nation’s retailers will issue monthly sales reports throughout the week ahead, with the bulk of the numbers coming out Thursday. Not only can a company’s sales figures affect its stocks, it can also boost or lower competitors’ shares as well as investors bet on different retailers within the sector.
And finally, companies that experienced a disappointing third quarter will start issuing lower forecasts for their earnings reports. With earnings season starting mid-month, it’s corporate America’s last chance to reduce expectations — and hopefully avoid a big drop in share price when the results are actually released.