Data May Spell Relief, Threats Loom

Sun Aug 1, 2004
By Elizabeth Lazarowitz

NEW YORK (Reuters) - Wall Street may react nervously this week to government warnings that al Qaeda is targeting the New York Stock Exchange and other financial institutions for attack, possibly overshadowing key jobs data.

Signs that the economic recovery grew a bit sluggish this summer have weighed on investor sentiment the past month, helping send major market gauges back toward their lowest levels of the year.

The U.S. government's move to raise the security alert level to "high," or code orange, for some prominent financial buildings on Sunday may unsettle investors further.

The NYSE and Citigroup Inc. (C.N: Quote, Profile, Research) buildings in New York may be targets, Homeland Security Secretary Tom Ridge told a news conference on Sunday, along with the World Bank and the International Monetary Fund in Washington.

"It's identifying specific targets, which is something that will weigh on the markets," said John Davidson, president of PartnerRe Asset Management. "But it shouldn't come as a huge surprise as the markets have been bracing themselves for the Republican convention."

The 2004 Republican National Convention is due to be held in New York between Aug. 30 and Sept. 2, amid tight security.

The attack warnings come after Wall Street largely brushed off corporate America's strong second-quarter results, and tepid forecasts from company managements have done little to quell fears that profits are poised to slow in the remaining months of the year.

The rebound in stocks over the past week, however, has given investors some hope that the market may be finding its footing.

And reports on the labor market and the manufacturing sector this week may offer some reassurance that the economic deceleration was only temporary.

In July, Federal Reserve Chairman Alan Greenspan offered an optimistic view of the economy, saying that the strong pace of growth is sustainable this year and the next, with little risk of inflation.

"The real questions that face the market are: Is Alan Greenspan right? Was June transitory? And will the economy start to improve in the third quarter?" asked Hugh Johnson, chief investment officer at First Albany Corp.

ECONOMIC DATA MAY OFFER SOME ANSWERS
Wall Street will get some help answering those questions this week when the Institute for Supply Management issues its monthly report on the manufacturing sector on Monday. The survey is expected to show a slight rise in July to 62 from 61.1 in June.

But the week's main economic event happens on Friday, when the government issues monthly payrolls data for July.

Economists polled by Reuters are expecting the report to show that the economy created about 228,000 jobs this month, following a gain of about 112,000 in June. The unemployment rate is expected to remain steady at 5.6 percent.

One of Wall Street's big worries has been that a slowdown in employment growth could prompt consumers, faced with potential joblessness, to curb their spending -- a force that powers about two-thirds of U.S. growth.

"That's going to go to the heart of what people think about how the economy's doing," said Henry Herrmann, chief investment officer at Waddell & Reed. "If we get a strong payroll number, people will be a little more confident about the consumer hanging in there, and we might get some more optimistic adjustments to people's thinking."

Stocks surged last week as investors snapped up shares that were battered in about a month of brutal losses. The Standard & Poor's 500 rose about 1.4 percent in the past week, snapping a six-week string of declines.

The Dow Jones industrial average finished the week up 1.8 percent and the Nasdaq Composite Index rose 2.1 percent.

The S&P 500 tumbled 3.4 percent in July, while the Nasdaq Composite fell 7.8 percent, their biggest one-month decreases since December 2002. The blue-chip Dow fell 2.8 percent, its largest one-month decline since January 2003.

EARNINGS SEASON WINDS DOWN

Earnings reports will taper off this week. But results are due from a few of Wall Street's marquee names, including Procter & Gamble (PG.N: Quote, Profile, Research) , R.J. Reynolds Tobacco Holdings (RJR.N: Quote, Profile, Research) and CVS Corp. (CVS.N: Quote, Profile, Research) .

Financial services company Prudential Financial (PRU.N: Quote, Profile, Research) is expected to issue its quarterly earnings report, as well as telephone company Qwest Communications International (Q.N: Quote, Profile, Research) .

About 80 percent of the companies in the S&P 500 have issued their earnings so far, and, when all is said and done, they are expected to show a 25 percent gain in year-over-year profits, according to Reuters Research.
Relief that the earnings season is nearly over and that the Democratic National Convention has gone by without a major hitch could give stocks a boost in the next few days, said Edgar Peters, chief investment officer at PanAgora Asset Management.

"The market is oversold right now," Peters said. "It's about as undervalued as it was a year ago last March, and we had a significant rise after that."

Still, uncertainty over a number of issues, including the upcoming U.S. presidential election and skyrocketing oil prices, could easily limit any gains the market makes.

On the New York Mercantile Exchange, September crude jumped to a session high of $43.85 a barrel on Friday, a new record in the NYMEX contract's 21-year history. NYMEX September crude settled at $43.80 a barrel, up $1.05.

Investors also will be closely following President Bush and Democratic rival John Kerry on the campaign trail, trying to sort out what the policies in their platforms will mean for the market.

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