The stock market is hinged this week to two key macro factors, one domestic and one international. Here at home, the monthly jobs report is critical given some recent signs of economic trouble. Internationally, the ECB meeting this week could offer global markets, including ours, reason to worry less about Greece disruption and the European economy. I expect that the week's news and data will be decent enough to allow recent tension to ease some, and I see capital wanting to get to work in stocks.
Last week's reported GDP slump, with Q4 growth being revised lower to a 2.2% rate, from 2.6%, was a downer for a market that I see wanting to rally. More importantly, though, the Chicago PMI data showing contraction of the Midwestern economy around Chicago really raised an alarm. The Institute for Supply Management (ISM) pointed to the weather and also the West Coast port issue as catalysts for the dramatic turn of events, but I believe the downturn in the energy sector also played a role given its growing importance to the region.
As a result, this week's jobs data, which comes in the form of the widely followed Employment Situation Report, weighs heavily. Economists are looking for the unemployment rate to improve to 5.6% for February, from 5.7% last month. There is some reason to question this, given the downturn in the energy sector, the winter weather and the repercussions of the West Coast port issue. Nonfarm payrolls are expected to increase by 230K in February, which is down from January's growth of 257K. Private nonfarm payrolls are expected to have increased by just 225K in February, down from 267K in January. Given that a slowing of growth is already expected by economists, it would probably take a lesser result to really harm the market; anything better, though, should serve stocks and give investors reason to doubt last week's economic data.
The European Central Bank (ECB) will weigh on global markets this week. Last week, despite the agreement between the Greek leadership and the Euro-Group, the Greek Parliament was kept from voting on the deal for concern that it might reject it. Greek stocks felt the pain of renewed political uncertainty as a result, but I expect that over time it will become clear that Greece remains in the euro-zone and those issues will reflect that. Tensions around the votes of various nations on the deal, and the Greek Parliamentary drama, also weighed on global markets in my opinion, though the issue was not really covered by the media.
This week's ECB monetary policy meeting should not result in much action, but it should still include some important discussion from the ECB Chairman. Mr. Draghi is likely to further discuss the ECB's plans for its extraordinary policy measures scheduled to begin in March. I expect the ECB will also reinstate the waiver on Greek collateral, which it pulled when the political situation was less clear. Now that Greece is on a path Europe can digest, the ECB should be able to support Greek markets as it plans to do others. This is good news for Greece but also beyond the embattled country, as it shores up certainty for the euro-region. I think there's a good chance the ECB will also talk about an improving European economic situation, which should serve markets both here and abroad.
Sector Security | YTD |
SPDR S&P 500 (NYSE: SPY) | +2.5% |
SPDR Dow Jones (NYSE: DIA) | +2.2% |
PowerShares QQQ (NASDAQ: QQQ) | +5.3% |
iShares Russell 2000 (NYSE: IWM) | +3.1% |
Vanguard Total Stock Market (NYSE: VTI) | +2.9% |
Stocks recovered ground lost in January and then some in February, but stocks stalled as a question was raised to investors on Friday due to the domestic data. As I discussed in recent work, I believe capital recently stored in safe havens has reason now to seek risk in stocks, given the resolution of the Greece issue, what looks like a September or later Fed rate hike, the Ukraine peace deal and European economic stability. All investors will need is some reassurance about the European and American economies this week to let stocks run higher in my opinion. I will be closely following the data as always, so interested parties are welcome to follow along with the column.