The US stock markets, chastened by less encouraging US economic indicators, face a key monthly jobs report in the week ahead that could prove negative for the first time in five months.
The closely watched jobs creation and unemployment numbers are scheduled to be released on Friday, before the equities markets open.
“The stock market appears to be responding to growing evidence that the pace of the US economic recovery has slowed over the last quarter,” said Frederic Dickson, chief market strategist at DA Davidson & Co.
“Clearly, an optimistic ‘V’-shaped recovery projected by some is not playing out. This raises the probability of a disappointing second-quarter earnings reporting season that unfolds in mid-July,” he said.
Over the past week, the blue-chip Dow Jones Industrial Average lost ground, following two consecutive weeks of gains. The Dow dropped 2.93 percent, finishing Friday at 10,143.81 points.
The tech-rich NASDAQ index tumbled 3.74 percent to 2,223.48 points and the Standard & Poor’s 500, a broad measure of the markets, shed 3.65 percent at 1,076.76 points.
The main source of disappointment came from two dismal reports on the troubled housing sector: new-home sales and existing-home sales.
“It called into question for a lot of people how much strength there is behind the housing market recovery,” Craig Peckham at the Jefferies brokerage said.
The housing data has left his firm “second-guessing” about the trajectory of the broader economic recovery in the US, he said.
A highlight of the past week’s macroeconomic calendar, the Federal Reserve’s interest-rate meeting, pointed out on Wednesday what the numbers have been suggesting recently.
Financial conditions have become “less supportive” of economic growth, the policy-setting Federal Open Market Committee said, laying most of the blame on developments “abroad,” a clear reference to Europe’s debt and deficit troubles.
That was a small comfort for traders.
“The recent market instability seems to be delaying monetary tightening” and thus the end of easy money, analysts at Barclays Capital wrote in a note to clients.
The analysts said they had pushed back their forecast of the next Fed hike of its key interest rate, which has been at virtually zero since December 2008, to next April from September.
“The key question for investors these days is whether the recent market setback spells the end of the global recovery in economic activity and financial markets that began more than a year ago,” the Barclays Capital analyts said. “Our answer to this question is no. The drop in risky asset prices — strikingly similar across all regions and products — looks to us like a healthy correction to markets that had run up extremely rapidly.”
Lindsey Piegza at FTN Financial said the recovery from the worst recession since the Great Depression was moving in fits and starts.
“The data is taking one step forward, one step back, so it’s very unclear ... it seems that a lot of investors are on the sidelines,” Piegza said.
“Investors are focusing on what is happening in the news, the sovereign debt crisis, the encouragement from [US President Barack] Obama over to Europe to continue to spend to support the economy, what’s happening with BP in the Gulf of Mexico — we are seeing all these anecdotal events hampering the mood,” she said.
In addition to the jobs data for this month in the week ahead, the economic calendar includes the latest numbers on consumer spending tomorrow, home prices on Tuesday and pending home sales on Thursday.
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