What will influence the direction of stocks this week -- and particularly that of the S&P 500 (SNPINDEX:^GSPC)? While that's a difficult if not impossible question to answer, one would be excused for concluding that it'll largely be dependent on two important reports due out on Monday and Friday, respectively.
The first concerns pending home sales, an estimate of the volume of purchasing contracts signed but not closed in any given month. When the National Association of Realtors last released the figures, the results were abominable. Its pending home sales index dropped by 0.8% in February compared to the previous month and by 10.5% relative to the same month last year.
To make matters worse, the disappointing figure is just one of many that have analysts and investors worried about the state of the housing recovery. Last week, for instance, we learned that both new and existing home sales plummeted in March. On a year-over-year basis, the former dropped by 13.3% and the letter fell 7.5%.
As a leading indicator of these trends, in turn, investors would be smart to closing watch Monday's release of the National Association of Realtors' pending home sales index.
The second report is the monthly jobs report, scheduled to be released by the government on Friday. The good news on the labor front is that the unemployment rate has dropped considerably. In March, it was estimated at 6.7%, or well below the 10% peak from four years ago.
However, the bad news is that this figure is becoming an increasingly unreliable reflection of the labor market's health. As Federal Reserve Chairwoman Janet Yellen recently discussed, the share of the workforce that's working part time but would prefer to work full time remains quite high by historical standards, the ranks of the long-term unemployed continues to be elevated, and the labor force participation rate is uniquely low.
With these things in mind, the big question is whether we'll see movement in the right direction on Friday. If things continue to improve, albeit even gradually, stocks are likely to respond in kind. If they don't, investors should prepare to feel the pain in their portfolios. Either way, for the long-term investor, these are but tiny blips on the radar that shouldn't influence your capital allocation decisions either way.
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