Quiet Holiday Week? Not So Fast!

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 |  Includes: DRYS, GLD, JOY, SPY, YGE
by: Bill Maurer

With US markets closed on Monday for Memorial Day, you would figure it might be a quiet holiday week. Well, you would be wrong. Even though there are only four trading days this week, there is plenty of economic data coming out, which will make for a very interesting week.

For all of my data below, I have used Yahoo! Finance's economic data page, which carries a "market" estimate, as well as estimates from Briefing.com. We are also continuing to get more information out of Europe daily, which should also shape this week's trading. While earnings season is mostly over, there are a few companies reporting that you should watch.

If you expected a quiet holiday week, you are in for a disappointment. This week will have a large impact going forward, as some of the economic data will definitely be used in this year's Presidential Election. I'll break down the economic picture, then follow up with a discussion on earnings, and finish with a brief conclusion.

Economic Data

On Tuesday, the economic parade will start with the Case Shiller 20-City Home Price Index, which measures the year-over-year price decline in residential real estate prices for the 20 largest metropolitan areas. The February report showed a 3.5% decline in those 20 markets. This week, we will get the March report, which the market expects to show a 2.8% decline. Briefing.com is a little more negative, expecting a 3% decline.

Also, Tuesday morning we will get Consumer Confidence data at 10 AM. The April report showed a reading of 69.2. The market is currently expecting confidence to slightly decline to a 69.0 rating, while Briefing.com is expecting a jump to 71. Consumer confidence should be helped a little by declining gas prices (which according to gasbuddy.com have dropped 16 cents in the past month), but the uncertain jobs picture could negatively affect the reading.

Wednesday is the slowest day of the week for economic data. We will get data on pending home sales, which is a report based on contracts signed. When we got the March report, the index reported a strong 4.1% gain from a level of 97.4 to 101.4. The Index is a leading indicator for the housing sector, based on pending sales of existing homes. An index of 100 is equal to the level of contract activity seen during 2001, and is generally seen as healthy for the economy. This week, we will get the April report. The market is expecting about a 1% decline, while Briefing.com expects a 2% rise. As the summer selling period is now here, a good report will show that the housing market is coming back.

Thursday will be the first of two huge days of economic reports. First, we will receive the Challenger Job Cuts Report, which details the number of planned job cuts. The April report showed a 7.1% increase from the prior month, and the April number was up 11.2% over the prior year's period. So far this year, the number of job cuts are up nearly 10%. There is no estimate for this week's number at this point.

We'll get the Challenger report at around 7:30 AM, and at 8:15 AM we will get the monthly ADP Employment report, measuring private sector job data. Last month, 119k (119 thousand) private sector jobs were created. The market is expecting a better report for May, with a forecast of 145k. Briefing is a little more optimistic, expecting 165k.

At 8:30 Thursday morning, we'll get the next round of data. Weekly initial jobless claims numbers will be out. Last week showed a 370k number, and the market expects us to be pretty much flat. Remember, jobless claims are almost always revised upwards the following week, so a number of 370k this week would probably be an "improvement", although there would be no real change since the previous week's number will have been revised to a worse figure. Briefing.com expects some improvement in the number, with a forecast of 365k. We'll also get the continuing claims figure at that time. The previous figure was 3260k, and the market is expecting a slight increase to 3265k, while Briefing shows a decline to 3250k.

But perhaps the biggest report of the morning will also be released then, when we get the second estimate for 1st quarter GDP. Both Briefing and the markets expect a decline to 1.9% from the original reading of 2.2%. Shortly after the market opens, we will get the Chicago Purchasing Managers Index for May. The April figure came in at 56.2. The market is expecting a rise to 57.5, but Briefing sees a decline to 55. This Index reflects the financial activity reflecting purchasing managers' acquisition of goods and services. Anything over 50 shows improvement. The April report showed the figure at a 29-month low, so an additional decline would signal more negativity.

On Friday morning, we get a ton of data, so I've compiled a table below showing the report, time period it covers, prior report figure, and current estimates from the market and Briefing.com. Except for the final two, ISM Index and Construction spending, which we get at 10 AM, all others will come out at 8:30 AM.

Economic Report For Last Market Briefing
Nonfarm Payrolls May 115k 155k 175k
Nonfarm Private Payrolls May 130k 172k 185k
Unemployment Rate May 8.1% 8.1% 8.0%
Hourly Earnings May 0.0% 0.2% 0.1%
Average Workweek May 34.5 34.5 34.5
Personal Income April 0.4% 0.3% 0.2%
Personal Spending April 0.3% 0.3% 0.2%
PCE Prices - Core April 0.2% 0.2% 0.2%
ISM Index May 54.8 54.0 53.0
Construction Spending April 0.1% 0.5% 0.0%
Click to enlarge

A couple of things to point out here. We have seen a few bad monthly jobs reports lately, and the consensus is for an improvement in May. Another worse-than-expected report would signal more slow job growth, which would definitely hurt President Obama's re-election campaign. A decline in personal income and spending would also be slightly troubling. Obviously, the jobs report will be the #1 focus, but I'm really curious to see the ISM Index. Expectations call for a decline, and we are getting a bit closer to the 50 level, anything below that number would mean that the manufacturing sector is contracting. That really would be a bad sign for the economy.

Earnings Reports

As I stated before, we are mostly through earnings season. However, a few names are still reporting. Here are three names that I will be watching as they report this week.

The first is the second fiscal quarter for Joy Global (NYSE:JOY), the large manufacturer and servicer of mining equipment. It will report Thursday morning. Analyst estimates call for nearly 35% year-over-year revenue growth to $1.43 billion. Earnings per share are forecasted to rise from $1.52 in the year-ago period to $1.95. The company has missed EPS estimates the last two quarters.

When Joy Global reported its fiscal first quarter, it gave full year revenue guidance of $5.6 billion to $5.8 billion and earnings per share guidance of $7.40 to $7.80. Current Street estimates stand at both midpoints, $5.7 billion in revenues and $7.60 in EPS. Investors will be looking for the company to at the least maintain its yearly guidance, but probably will be looking for the company to raise expectations.

Shares of Joy Global stand just above $60, only about $3 above their 52-week low after some recent declines. The 52-week high is above $101. The average analyst rating is a buy, with the average price target around $95. A good report should send this name back to $70 within the next few weeks. A bad report will definitely result in new 52-week lows.

Yingli Green Energy (NYSE:YGE) will report its fiscal first quarter before the bell on Wednesday. The Chinese solar name has been hit hard like many others in the industry, and shares stand very close to their 52-week lows.

For the quarter, analysts are expecting a revenue decline of nearly 15% to about $449 million. Earnings per share are forecasted to fall from a profit of $0.35 to a loss of $0.21. The company has missed earnings estimates in three of the past four quarters.

The company is expected to see revenues decline by about 10% this year before rebounding next year. The company is expected to lose money this year after posting a profit in 2011. This fall in earnings will likely occur throughout the solar industry this year. Yingli shares have been beat down and are heavily shorted. A good report would likely result in a short squeeze and probably would push all names in the sector higher, at least for a short period of time. A bad report will send this name, perhaps others as well, to new lows.

The final name I will be watching closely is Dryships (NASDAQ:DRYS), the large drybulk shipper. The company will report Tuesday afternoon and hold a conference call Wednesday morning. For the fiscal first quarter, the company is expected to post a 29.1% increase in revenues to $267.76 million. Earnings per share are expected to decline from a $0.15 profit to a 2 cent loss. Dryships has missed estimates in three of the past four quarters, and earnings estimates have been taken down from $0.14 over the past 90 days.

For the full year, the company is expected to post a revenue increase of 22.1% to $1.32 billion. However, earnings per share are forecast to decline from $0.41 to $0.18, with most of that decline coming from the first quarter; 90 days ago, estimates called for a $0.46 profit this year. The stock currently trades at $2.29, towards the lower end of its $1.75 to $4.34 yearly range.

Conclusion

This week, we will get a large dose of economic data, which will feel even larger given the holiday shortened week. Most of the data will come towards the end of the week, making Thursday and Friday very busy. The jobs data will be at the heart of the market's movement.

The S&P 500 (NYSEARCA:SPY) has come off a bit in recent weeks, but bounced last week off its recent low near 1,292. We currently stand at 1,318, about 100 points off the 52-week high. Should the economic data be decent, and maybe some positive news comes out of Europe, I would expect the S&P 500 to head towards 1,350. However, should Europe be an issue and the economic data be poor, a retest of those near 1,290 lows is likely.

Another thing I'll be looking at is the price action in gold (NYSEARCA:GLD). Despite all the bullish calls, $2,000 and higher price targets, gold is actually less than $100 off its 52-week low of about $1,495. We currently stand at about $1,575. I'll admit that I was one of those gold bulls for a time last year, and I've been wrong about gold so far this year.

It is going to be a very busy week, and should be a rather important one as well. The jobs data is going to have a fair amount of importance in the upcoming election, and a take down in first quarter GDP numbers will also show economic growth is not as robust as many had hoped.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.