NEW YORK – Stocks will stick to a range next week as investors await the Federal Reserve's (search) monetary policy decision and sort through a fresh batch of economic data for signs the recovery is still intact.
The Federal Open Market Committee (search) is widely expected to keep interest rates steady and maintain its expectations for tame inflation and gradual jobs growth at its policy-setting meeting on Tuesday.
While most investors are betting rates will stay low for at least the rest of the year, particularly given last week's unexpectedly soft labor market statistics, they will be listening keenly for any shift in the Fed's outlook.
"What's really important is how the FOMC characterizes the labor market in their statement," said Jeff Kleintop, chief investment strategist at PNC Advisors, adding that any hint from the Fed that the jobs drought is more severe than currently thought could affect investors' interest-rate expectations.
Security jitters may also help temper investors' enthusiasm for stocks. The market retreated sharply after the deadly bombing in Madrid put investors on guard, compounding concerns that the market has already factored in expectations for better corporate profits after the strong stock rally in the past year.
Even after a hefty rebound on Friday, the three major U.S. market gauges were off substantially for the week: The Standard & Poor's 500 index (search) fell 3.14 percent, the Dow Jones industrial average (search) dropped 3.35 percent, and the Nasdaq Composite Index (search) fell 3.07 percent.
This week's losses pushed the Dow and the Nasdaq into negative territory for the year, down 2.05 percent and down 0.93 percent respectively. The S&P 500 still has a modest gain of 0.78 percent for 2004.
Investors are hungry for evidence that U.S. growth will remain robust in the months ahead, even after the impact of the government's attempts at economic and fiscal stimulus begins to fade.
"We'll continue to look for positive economic news, something to offset the jobs numbers," said Edgar Peters, chief investment officer at PanAgora Asset Management. "People will hook onto whatever we can get."
The flow of corporate earnings reports remains at a trickle next week, although a few companies will nab the spotlight with their results. From the financial sector, Bear Stearns (BSC) and Morgan Stanley (MWD) are both expected to issue their quarterly scorecards. Results are also on tap from General Mills Inc. (GSI), the maker of Wheaties cereal, Betty Crocker cake mixes and Progresso soups; package delivery giant FedEx Corp. (FDX), and the world's top athletic shoemaker, Nike Inc. (NKE).
Weekly data on jobless claims will be one of the reports to watch next week, as well as a couple of regional manufacturing surveys, data on industrial production and consumer-level inflation figures.
Worries that businesses are not growing enough to hire new workers have been nagging investors for months as the weak labor market heightens fears consumers may rein in the spending that buoyed U.S. growth through the recent economic downturn.
"More and more, you're going to be listening to company conference calls to find out whether they are hiring people or will be hiring people," said Henry Herrmann, chief investment officer at Waddell & Reed. "What's really in play now is whether or not the economic expansion is sustainable ... and an important part of the answer is jobs."
The Labor Department (search) reported last Friday just 21,000 workers were added to company payrolls in February, another in a recent string of disappointing reports.
Next week, the New York Fed's Empire State Survey on Monday will give investors a glimpse at the manufacturing sector, followed by the Philadelphia Fed's manufacturing survey on Thursday.
Industrial production figures will also garner some attention on Monday. Economists are expecting a rise of 0.4 percent in February, versus at 0.8 percent gain in January, according to a Reuters survey.
The government's Consumer Price Index, due on Wednesday, is expected to show a gain of 0.3 percent overall in February and a smaller increase of 0.1 percent, excluding volatile food and energy prices, according to economists polled by Reuters.
Investors are looking out for any signs of inflation, since an uptick could spur the Fed to hike rates sooner, rather than later.
In the near term, with little in the way of a clear-cut catalyst for the market, market experts are expecting a choppy ride for stocks.
"I don't see any reason for a real bounce back," Kleintop said. "But by the same token, I don't any reason for a real decline."