U.S. stocks may run into some turbulence next week as the impending release of bank stress test results, a Federal Reserve meeting and a flood of earnings will give investors some reasons for caution.
While investors have been heartened by a recent flurry of surprisingly upbeat earnings and economic data, strategists said there was still concern about whether the government has done enough to shore up the banking sector.
Besides fretting about bank stress tests, investors also will be confronted by a raft of economic indicators in the coming week. The data menu includes readings on February home prices, April consumer confidence, weekly jobless claims and an advance report on first-quarter real Gross Domestic Product.
The Federal Reserve will be in the spotlight as the central bank's policy-making panel is set to hold a two-day meeting beginning on Tuesday.
People are looking for positive news out of the stress tests, saying that the banking system is now OK, said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com in Shrewsbury, New Jersey. I think there could be some rockiness next week.
Getting the banking sector stabilized is seen as one of many crucial steps to get the economy on the road to recovery.
STRESS AND VOLATILITY
Worries about the banking sector's health helped drive the market to 12-year lows early last month, and since those significant lows, the benchmark S&P 500 <.SPX> has rebounded 28 percent.
This week, the Dow fell 0.7 percent and the S&P 500 shed 0.4 percent, causing both to break a six-week winning streak. The Nasdaq <.IXIC> registered its seventh straight weekly advance, rising 1.3 percent.
The Obama administration is due to publicly release the bank stress test results on May 4, which is a week from this coming Monday. But there are fears that some of the news could start trickling out next week, which raises the specter of more volatility in the stock market.
One thing investors should expect right now is at least further volatility in the financial sector until the stress test results come out on May 4, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
We're very likely to see a pickup in rumors as we get closer to that May 4 announcement of where all the banks stand in terms of the stress tests.
EXXON JOINS THE EARNINGS PARADE
The earnings calendar is full of economic bellwethers, including five components of the Dow Jones industrial average <.DJI>: Exxon Mobil Corp
According to Thomson Reuters data, about 35 percent of the S&P 500 companies had reported quarterly results through Friday, and the aggregate forecast is for first-quarter earnings to decline 35.3 percent from a year earlier.
Expectations have been so low and companies have been doing a very good job on the cost side, so while revenues are light across the board, as expected, earnings have been OK. And the outlooks, while cautious, have been favorable, said David Katz, chief investment officer at Matrix Asset Advisors in New York.
Other household names due to post results next week are media and entertainment conglomerate Viacom
For the full corporate earnings diary, click
Also set to command attention are any developments surrounding the beleaguered U.S. auto sector. Chrysler faces an April 30 deadline, which falls on Thursday. to reach deals to cut its debt and labor costs, as well as cement an alliance with Italy's Fiat SpA
Chrysler has been operating under $4 billion of emergency U.S. government loans and it would need to complete those agreements to maintain its funding and receive more. Without additional support, Chrysler may liquidate.
CONSUMER CONFIDENCE AND GDP AHEAD
Standouts on next week's economic calendar include the release of the S&P/Case-Shiller home price index for February on Tuesday, along with an April index of consumer confidence.
The government's advanced reading on first-quarter real GDP is set for release on Wednesday, the day the Fed concludes its policy meeting and makes a statement.
The advance reading of first-quarter GDP, a measure of all goods and services produced within U.S. borders, is expected to show the pace of contraction slowed to a 5 percent annual rate from 6.3 percent in the fourth quarter, according to a Reuters poll of 69 economists.
Among Thursday's data highlights will be reports on weekly jobless claims, data on March personal income and spending, the first-quarter employment costs index and a report from the Chicago purchasing managers on April manufacturing activity in the U.S. Midwest.
(For the economic diary and the Reuters poll of economists' forecasts, see)
(Wall St Week Ahead runs weekly. Questions or comments on this one can be e-mailed to: ellis.mnyandu(at)thomsonreuters.com)