By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) -- The three main U.S. stock
benchmarks are finally positive for the year, and the S&P 500
closed Friday at a record above 1,900.
So where are the rally caps?
In the thin trading ahead of the holiday weekend, some
strategists were more focused on the holding pattern stocks seem
bound to, blaming a lack of confidence in the economic recovery.
Euphoric, it was not.
"That's why you have this tug of war," said Mark Luschini, chief
investment strategist at Janney Montgomery Scott. "Good economic
news is supportive but it's not so convincing to cause a break
out."
On Friday, the Dow Jones Industrial Average (DJI) , the S&P
500 Index(SPX) , and the Nasdaq Composite Index (RIXF) all showed
year-to-date closing gains at the same time for the first time in
2014. Both the Dow industrials and Nasdaq are up 0.2% for the year,
while the S&P 500 is up 2.8%.
These meager gains follow months of zig-zagging and the sound of
snoring from parts of the market that should reflect fear, or at
least some excitement. The CBOE's volatility index (VIX), closed at
11.36 on Friday and is down 15% in May alone. For stocks, Friday
was the lowest volume day of the year.
Much of the indecisiveness about stocks comes from their
record-high valuations, sluggish earnings growth in the
weather-beaten first quarter, and questions about how much the
economic recovery is based on hope versus solid fundamentals.
Last week, April housing sales saw an uptick with existing-home
sales up for the first time this year and new single-family home
sales up more than 6%.
While that appears to be good news, that isn't stopping many big
Wall Street investors like DoubleLine Capital founder Jeffrey
Gundlach and real-estate investor Sam Zell from making a bear case
on housing.
GDP to go negative
Plus, on Thursday, the Commerce Department will revise the
measly 0.1% GDP growth figure for the first quarter, and economists
surveyed by MarketWatch expect that to be cut to a 0.6% decline for
the quarter. If that happens, it'll be the first quarterly GDP
decline since the first quarter of 2011, or as permabear Peter
Schiff of Euro Pacific Capital likes to put it, "half way to a
recession."
Other possible economic data that could factor into stocks this
Memorial Day-shortened week include:
* April durable goods orders, the Case-Shiller and FHFA home
price indexes, May consumer confidence on Tuesday.
* April pending home sales and jobless claims on Thursday.
* April personal income and consumer spending data, Chicago PMI,
UMich consumer sentiment index on Friday.
Also, on the horizon, Janney's Luschini said that the European
Central Bank meeting in early June could drag on U.S. stocks if the
central bank response to low inflation is considered to be too
timid.
"They could be exporting their lack of inflation," he said.
Michael Kors, Guess earnings
U.S. earnings growth in the first quarter isn't sparking a
rallying cry in stocks. First-quarter earnings for the S&P 500
grew 2.1%, according to John Butters, senior earnings analyst at
FactSet, and expectations for double-digit earnings growth are
hoping to propel that to 7.7% growth for the year.
"I think we are going to see more back and forth and I think
what's driving that are earnings, which have done better than
expected but on very reduced expectations," Brad McMillan, chief
investment officer of Commonwealth Financial, told MarketWatch's
Tracy Johnke in a recent interview. "And because of that, we're
seeing the forces that have driven multiples higher start to pull
back a little bit."
So, it's the hope for better earnings that are keeping us
range-bound, he said. The problem is companies are already pushing
the limits on all the tools they've been using to boost earnings,
namely, improving margins, cutting costs, becoming more efficient,
and buying back more shares, McMillan said.
A few S&P 500 companies report quarterly earnings this week
such as AutoZone Inc.(AZO), Michael Kors Holdings Ltd.(KORS),
Costco Wholesale Corp.(COST) , Pall Corp.(PLL) , and Avago
Technologies Ltd. (AVGO)
Other notable earnings reports include Palo Alto Networks Inc.
(PANW) , Toll Brothers Inc. (TOL) , Abercrombie & Fitch Co.
(ANF) , Guess Inc.(GES) , Ann Inc.(ANN) , and Big Lots Inc.
(BIG)
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