NEW YORK: With signs of a slower economy mounting, the near-term outlook for US stocks isn’t rosy, but investors may find comfort next week from the world’s major central banks.
The Federal Reserve will meet tomorrow and Wednesday, with the report of weaker-than-expected, first-quarter growth could reinforce expectations the Fed will keep purchasing bonds at a pace of $85bn a month.
Low interest rates and ample liquidity provided by the Fed and other central banks have buoyed global equity markets because low borrowing costs for businesses and consumers lead to richer corporate profits. Major US stock indexes hit record highs earlier this month.
“As long as it looks like central banks are on your side and on investors’ side as far as providing more liquidity, that’s going to help improve sentiment,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
“I don’t think (Fed officials) have got enough data since the last meeting to really justify changing policy. I really don’t think they’re going to look at slowing the pace of purchases until probably September.”
A strong commitment from the Fed to continue its stimulative policy, coupled with corporate earnings that have mostly exceeded lowered forecasts, could help Wall Street extend a rally despite signs that the US economic recovery is losing momentum.
Even though the market ended flat on Friday, its performance for the week was positive. The Standard & Poor’s 500 rose 1.7 percent, the Dow Jones Industrial Average was up 1.1 percent and Nasdaq Composite Index rose 2.3 percent
The economy expanded at a 2.5 percent annual rate in the first quarter, the Commerce Department said on Friday, short of expectations of 3.0 percent and setting a cautious tone.
A heavy slate of key economic indicators will be released next week, including personal income and spending, the Institute for Supply Management’s manufacturing and services activity indexes, pending home sales, the Chicago purchasing managers’ index and consumer confidence from the Conference Board.
key highlight
The highlight of the week will come on Friday when the Labour Department releases its employment report for April. Economists polled by Reuters are looking for job growth of 150,000, up from 88,000 in March. The unemployment rate is likely to remain unchanged at 7.6 percent.
“Today’s (GDP) data suggests maybe the momentum is much weaker that what was priced in,” said John Praveen, chief investment strategist at Prudential International Investments Advisers in Newark, New Jersey.
The European Central Bank meets on Thursday and investors will watch to see if it delivers an interest-rate cut as the euro zone economy deteriorates further. Further monetary easing would encourage investors to buy riskier assets and boost stocks.
Next week Dow components reporting results will be Pfizer and Merck. Other companies scheduled to report include Loews Corp, Aetna Inc, Chesapeake Energy , Visa Inc, Viacom Inc and Kraft Foods Group Inc.
Reuters
