Stocks are set to churn sideways to higher next week as Wall Street digests a pile of key economic data. But increasing tensions between India and Pakistan could throw a wrench in the works.
"The market is being impacted by the disturbing situation between Pakistan and India, which is of great concern, and also the falling dollar and rising gold," said Mr Peter Cardillo, chief strategist at Global Partners Securities. "But the market is oversold so we might get some bargain-hunting rallies."
Don't look for any runaway rallies, though. Investors still are looking for "good" corporate news to confirm the improving economic backdrop. They will await a mid-quarter update from semiconductor giant Intel on Thursday.
"The combination of deteriorating news from Pakistan, a weakening dollar and the lack of positive corporate news continues to weigh heavily on the minds of investors," said Mr Fred Dickson, chief market strategist at D.A. Davidson.
"While market averages appear to be consolidating, the bulls remain in hiding," he said in a note. "Traders and investors alike clearly aren't finding compelling reasons to re-enter the market and aggressively buy stocks."
The Street will pick apart reports on the status of the giant US manufacturing sector as well as the services sector, car sales and the crucial monthly jobs data, all covering the month of May, plus April construction spending.
If the situation between Pakistan and India does not get worse, "we will probably see the market respond to economic numbers which I think will show some pullback from the first quarter but also that the recovery continues," Mr Cardillo said.
The tense Pakistan-India border is an albatross weighing down market sentiment. Adding to jitters, Washington said it authorized the departure of non-emergency US staff from India.
"The key borders that gave us trouble recently were Israel and Palestine, and now India and Pakistan," Mr Alan Ackerman strategist at Fahnestock & Co said. "In both cases, there seems to be no predictability for stability and that's why a lot of people move cash to the sidelines."
Some of that cash recently found its way into "safe-haven" investments such as gold bullion and gold stocks, sending both soaring.
Conversely, the Street nervously watched the US dollar sink before it rebounded on Friday after intervention from the Bank of Japan, which sold yen to buy dollars. The intent was to rein in the yen's strength.
"It's tough to predict what will happen next week because it will depend on the political situation, most importantly the dollar and the economic numbers," said Mr Hugh Johnson, chief investment officer at First Albany Corp.
The May employment report, due before Friday's open, is expected to show creation of 58,000 jobs, up from April's 43,000 jobs, according to economists polled by Reuters. The unemployment rate is expected to rise to 6.1 per cent in May from 6.0 per cent in April.
"The jobless numbers affect the consumer psyche. If it is adverse, it may hit the consumer, and if it is moderate, it is likely to encourage the consumer to spend," Mr Ackerman said. - (Reuters)
