Andy’s Market Report – 4/8/12

The S&P 500’s loss for the week of 0.7% was its biggest weekly decline of the year as yields on Spain’s debt climbed higher and its equity market hit lows not seen since the height of the euro zone’s crisis last year.

But the question is, will this past week’s losses carry into next week? Is the latest decline a sign of things to come?

Well, on Friday the U.S. Labor Department said employers added 120,000 jobs, the fewest in five months and less than the median economist forecast of 205,000 economists’ predicted. The amount had exceeded 200,000 for three straight months.

“This is a real shock,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages about $3 billion, said in a telephone interview. “Everybody is so hung up on the 200,000 increase.”

After the S&P 500’s rise of about 30% since October, there is concern that buying interest is not strong enough to drive further gains, particularly after soft March U.S. employment figures were released on Friday.

“It seems like we’re hitting resistance,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. “I think the market will grind higher, but it will be at a much slower pace. Earnings and jobs aren’t helping.”

But earnings begin next week and they are definitely the wild card for how the market will perform over the next month or so.

Warnings have dominated the pre-earnings season. Of the 121 pre-announcements, 68% are negative ones, compared with 58 percent in the first quarter a year ago.

“The reduced expectations leave more room for upside surprises,” said Michael Mullaney, a portfolio manager who helps manage $9.5 billion at Fiduciary Trust Co in Boston.

“Earnings are expected to be weak this quarter, and if you strip out Apple, the picture is even worse.
 
That could be a big headwind, especially at a time when the macro environment is less than friendly.”
One thing is certain, with futures already down over 1% heading into next week we should be in store for some much needed volatility.