Wall St Week Ahead: Commodities' drop curbs risk appetite

NEW YORK: U.S. stock investors head into the new week, starting
Monday, May 9 with added worries about the sustainability of the recent
rally and a desire to reduce risk, as shown by the stampede out of
commodities on Thursday.
Stocks also will begin to lose the support they've enjoyed from
stronger-than-expected earnings since the first-quarter reporting period
is almost at an end.
The drop in commodities this week spilled over into commodity-related
stocks, which were among the top performers in the last two quarters.
The Standard & Poor's energy index ended the week down 7 percent,
its biggest weekly drop in a year, and the iShares Silver Trust
suffered its worst week of outflows ever after heavy losses in the
precious metal.
While the commodities rout may be done for now, it has left many investors worried about the ramifications.
"It's hard to pinpoint the time when the bubble bursts and hard to go
against the current, but when it bursts it's precipitous usually," said
Natalie Trunow, senior vice president and chief investment officer of
equities at Calvert Asset Management Company in Bethesda, Maryland,
which manages about $14.8 billion in assets and is underweight energy.
With first-quarter earnings and also the Federal Reserve's QE2
purchasing program coming to an end, the stock market could be
vulnerable to some weakness in the short term, she said.
"I wouldn't be surprised if we had a somewhat softer summer or
somewhat softer next couple of months," said Trunow, who said she is
still positive on the U.S. market longer-term.
The S&P 500 suffered its worst week since March, even with
Friday's surprisingly strong jobs report that allowed the index to end a
four-day losing streak.
It is now just above critical support at 1,330. A close below that
level could "turn the intermediate-term picture bearish," according to a
note from Larry McMillan, president of McMillan Analysis Corp.
SENTIMENT STILL UPBEAT
Despite this week's skittishness, sentiment for the market is
positive longer term, and technical indicators do not suggest the market
is overbought.
"Our view is still unchanged; we still like the market," said Jeff
Rubin, market strategist at Birinyi Associates in Westport, Connecticut.
Much of the fundamental picture remains bullish for stocks, said Hank
Smith, chief investment officer at Haverford Trust Co. in Philadelphia.
"The economy and valuations remain attractive," he said. "We remain
bullish, but with any bull market, it's healthy to have pullbacks."
Friday's Labor Department report, which showed U.S. employment
increase more than expected in April and U.S. companies created jobs at
the fastest pace in five years, gave evidence of the underlying strength
in the economy, analysts said.
But labor has been among the weakest areas, and next week's jobless
benefits claims and retail sales data will be watched for further clues
on the jobs picture and health of consumer spending.
In earnings news, a number of retailers are expected to report next week, including Macy's, Nordstrom and Kohl's.
Earnings estimates have risen since the start of the reporting
period. Profits for S&P 500 companies are now expected to have
climbed 18 percent in the first quarter from the year before, up from an
estimated 13 percent rise at the start of April, according to Thomson
Reuters data.
Of the 438 S&P 500 companies that have reported so far, 69
percent have beaten analyst earnings expectations. That's roughly in
line with the high rate of beats seen in recent quarters.
Adding to nervousness, a small group of European finance ministers
were meeting to discuss the euro zone debt crisis, and Greece denied a
media report speculating the country was considering leaving the euro
zone.
The speculation caused stocks to trim some of their gains on Friday, May 6.
Friday marked the one-year anniversary of Wall Street's "flash crash"
when prices suddenly plunged and nearly $1 trillion was wiped off U.S.
stocks' value in a matter of minutes before the market bounced back.
The crash shook many investors' confidence, but the market regained steam and has rallied since about the start of September.
The S&P 500 is up about 28 percent since then. - Reuters