Jobs Data May Halt Stock Rally

Look for U.S. stocks to drift higher next week as optimism about the economy and earnings continues. But key data on the employment picture, auto and retail sales could trip up the market's momentum.

The week is likely to get off to a slow start as investors return from a long holiday weekend. U.S. stock, bond and oil markets will be closed for the Memorial Day holiday Monday.

But activity will likely pick up when a slew of economic data hits traders' screens.

Strategists thought the market's mood was improving going into June.

"I would think portfolio managers come into June thinking that the spring rally still has a way to go," said Frederic H. Dickson, chief market strategist at D.A. Davidson & Co.

"Generally the mood of the market is a bit better," Dickson said. "We really haven't had any significant earnings warnings. That's going through the system and lifting confidence."

Oil prices will remain on the radar as the summer driving season gets under way. Crude for July deliverysettled at $51.85 a barrel on the New York Mercantile Exchange (search) Friday -- a lofty enough level to keep investors concerned about the impact on corporate profits and consumer spending.

That put a limit on stock gains Friday, when the blue-chip Dow Jones industrial average (search) closed up only 4.95 points, or 0.05 percent, at 10,542.55.

For the week, the Dow gained 0.67 percent, while the broad Standard & Poor's 500 Index (search) advanced 0.80 percent and the tech-laced Nasdaq Composite Index (search) climbed 1.43 percent.

Christopher Johnson, director of quantitative analysis at Schaeffer's Investment Research, thought markets could move higher for technical reasons.

"The market's broken through some considerable resistance levels, so from a technical perspective, some overhead room has been made to move higher," Johnson said.

U.S. payroll data Friday will likely be the most influential of the economic numbers due.

The last report showed non-farm payrolls rose 274,000 in April -- exceeding forecasts and suggesting the economy could be pulling out of its soft patch.

Economists polled by Reuters expect that 185,000 jobs were created in May. The U.S. unemployment rate is forecast to hold steady in May at 5.2 percent.

"The biggie next Friday will be the unemployment data," said Al Goldman, chief market strategist at A.G. Edwards. "And investors don't want any surprises."

Tuesday, when Wall Street returns to work from the long holiday weekend, it will have two economic reports to chew on: The May U.S. consumer confidence index from the Conference Board (search), a private research group, and the National Association of Purchasing Management (search)-Chicago index, also known as the Chicago PMI, for May.

The forecast calls for the May consumer confidence index to fall to 96.5 from 97.7 in April, while the Chicago PMI is expected to have dropped to 62.0 in May from April's 65.6, according to economists polled by Reuters.

Other key data will include Wednesday's Institute for Supply Management (search) manufacturing index for May, with economists polled by Reuters expecting a nudge down to 52.1 from April's reading of 53.3. A number above 50 indicates growth in the sector while below denotes contraction.

"Next week is a big week for economic reports and that is going to be the driver for the market," said Schaeffer's' Johnson. "It'll be one of those weeks where one number could throw a wrench in the works."

While the earnings calendar is light, a swath of U.S. retailers will report May same-store sales figures -- a key gauge of performance -- Wednesday and Thursday. Investors will scan the figures for signs that high gasoline prices are cutting into consumer spending, especially at discount chains like Wal-Mart Stores Inc. (WMT).

Analysts have also cautioned that unusually cold and rainy weather in May has hurt sales of spring clothing and gardening gear.

Meanwhile, Wednesday, automakers will report their May U.S. sales. Analysts expect that General Motors Corp. (GM) and Ford Motor Co. (F) bore the brunt of slowing U.S. vehicle sales in May, hurt by high gasoline prices and flagging demand for sport utility vehicles.