Week Ahead: Swine Flu, Stressed Banks and Stretched Stocks

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The Week Ahead

The week ahead offers threat to the nascent bull run. Stocks seem stretched after leveling out last week. In that most recent period, the Dow Jones Industrial Average (^DJI) closed down fractionally.

While technical analysis is not an area of focus for "The Greek," I can tell when the market reaches a point of inflection. I believe we got there last week, and with the results of the bank stress test just ahead, I see market upside potential limited in the near-term. Of course, the bank stress test is proving to be a joke of an exam, graded on a scale and one in which nobody of significance is likely to fail... because seriously, why would a central bank that has gone to such great lengths to preserve the largest of the nation's financial institutions choose to be the determinant of their demise now...

Beyond the stress test, the Swine Influenza outbreak is a very real and dangerous threat to the global economy. Therefore, we expect the market has good enough reason to give back significant ground this week.

Monday

Even though there are no economic reports scheduled for Monday, plenty of potential market drivers loom. The outbreak of a new strain of Swine Influenza has Mexico City on lock-down and several American states already dealing with local threat. This looks to be a clear driver for downside on Monday morning, as risk is high if the flu proves to be as virulent as the first 1,000 cases indicate it might. At our last check, the morbidity rate was around 7%. Early American cases have not been deadly thus far, but it is still way too early to exhale.

The U.S. Treasury is scheduled to announce its estimated borrowing needs for the second and third quarters around 3:00 PM EDT. The number may see revision higher if tax receipts did not satisfy its forecast.

The Milkin Institute holds its annual conference Monday. Just a month ahead of its candidate exams for its prestigious charter, the CFA Institute hosts NYU Economist Nouriel Roubini and Finance Professor Andrew Lo. The French Finance Minister and the ECB President are also scheduled to speak at the Global Financial Forum hosted by JP Morgan Chase (NYSE: JPM) and the New York Fed.

Markets will be shut in Australia, but the earnings schedule is still hot and heavy in the United States. American Express (NYSE: AXP) will hold its annual meeting, after the shares soared to close out last week's trading. Look for fresh earnings reports from Checkpoint Software (Nasdaq: CHKP), Whirlpool (NYSE: WHR), Verizon (NYSE: VZ), Aaron Rents (NYSE: AAN), Alberto Culver (NYSE: ACV), Alliance Holdings (Nasdaq: AHGP), Axis Capital (NYSE: AXS), Baidu (Nasdaq: BIDU), Banco Popular (MCE: POP.MC), BE Aerospace (Nasdaq: BEAV), Corning (NYSE: GLW), Energizer (NYSE: ENR), Fidelity National Financial (NYSE: FNF), First Advantage (Nasdaq: FADV), Gulfmark Offshore (NYSE: GLF), Health Management Associates (NYSE: HMA), HealthStream (Nasdaq: HSTM), Humana (NYSE: HUM), Kyocera (NYSE: KYO), Lorillard (NYSE: LO), MBT Financial (Nasdaq: MBTF), Montpelier Re (NYSE: MRH), PartnerRe (NYSE: PRE), Plum Creek Timber (NYSE: PCL), PrePaid Legal (NYSE: PPD), Qualcomm (Nasdaq: QCOM), Rent-A-Center (Nasdaq: RCII), Smith Int'l (NYSE: SII), Telefonos De Mexico (NYSE: TMX), Travelzoo (Nasdaq: TZOO), Universal Health Services (NYSE: UHS), Valero Energy (NYSE: VLO), Weingarten Realty Investors (NYSE: WRI), XL Capital (NYSE: XL) and many more.

Tuesday

Look for S&P/Case Shiller's Home Price Index release just before the open on Tuesday. However, the data being reported is simply too old to matter much to a market that already has a good idea of current price trend. For informational purposes, we note that January's data showed record annual rates of decline in both the 10 (-19.4%) and 20 (-19%) metro area composites. The Federal Housing Finance Agency reported last week that February prices increased 0.7% over those of January. The FHFA also reported that for the 12-month period ending in February, prices were 6.5% lower.

Bloomberg's consensus of economists sees the Conference Board's measure of consumer confidence rising slightly again for April. The group forecasts a reading of 30.0 on the index this time around, versus 26.0 for March. We've seen confidence improvement (or less deterioration anyway) in the weekly same-store sales data out of the International Council of Shopping Centers. Last week, that report showed only a 0.1% year-to-year decline, with a 0.4% weekly drop posted.

The Federal Open Market Committee begins its two-day meeting on Tuesday. The earnings schedule highlights reports from McGraw-Hill (NYSE: MHP), Tellabs (Nasdaq: TLAB), ACE Ltd (NYSE: ACE), Advent Software (Nasdaq: ADVS), AGCO (NYSE: AG), American Commercial Lines (Nasdaq: ACLI), American Greetings (NYSE: AM), American Safety Insurance (NYSE: ASI), Anadigics (Nasdaq: ANAD), Avery Dennison (NYSE: AVY), Beckman Coulter (NYSE: BEC), Becton, Dickinson & Co. (NYSE: BDX), BP Plc (NYSE: BP), Bristol-Myers Squibb (NYSE: BMY), BTU Int'l (Nasdaq: BTUI), Buffalo Wild Wings (Nasdaq: BWLD), Celanese (NYSE: CE), Centene (NYSE: CNC), Ceradyne (Nasdaq: CRDN), Cerner (Nasdaq: CERN), China Eastern Airlines (NYSE: CEA), China Southern Airlines (NYSE: ZNH), Coca-Cola Enterprises (NYSE: CCE), Coventry Health Care (NYSE: CVH), Daimler AG (NYSE: DAI), Danaos (NYSE: DAC), Deutsche Bank (NYSE: DB), Dream Works Animation (NYSE: DWA), E*TRADE (Nasdaq: ETFC), EarthLink (Nasdaq: ELNK), Franklin Resources (NYSE: BEN), Franklin Street Properties (NYSE: FSP), Hecla Mining (NYSE: HL), Hercules Offshore (Nasdaq: HERO), Honda Motor (NYSE: HMC), Hospira (NYSE: HSP), Jacobs Engineering (NYSE: JEC), Kelly Services (Nasdaq: KELYA), Kulicke & Soffa (Nasdaq: KLIC), Massey Energy (NYSE: MEE), National Instruments (Nasdaq: NATI), Office Depot (NYSE: ODP), OptionsXpress (Nasdaq: OXPS), PACCAR (Nasdaq: PCAR), Panera Bread (Nasdaq: PNRA), Pfizer (NYSE: PFE), Psychiatric Solutions (Nasdaq: PSYS), RF Micro Devices (Nasdaq: RFMD), Rockwell Collins (NYSE: COL), Sun Microsystems (Nasdaq: JAVA), Superior Energy Services (NYSE: SPN), Under Armour (NYSE: UA), Unisys (NYSE: UIS), United States Steel (NYSE: X), Vestas Wind Systems (VWS.CO), VF Corp. (NYSE: VFC), Waters Corp. (NYSE: WAT), Websense (Nasdaq: WBSN), Williams Controls (Nasdaq: WMCO) and more.

Wednesday

At 8:30 AM, the Bureau of Economic Analysis will publish the Gross Domestic Product (GDP) for the first quarter of 2009. According to Bloomberg's tally of experts, GDP should have contracted by 5.0% in the quarter, but the range of forecasts extends to as low as -6.2%. At its final counting, GDP contracted by 6.3% in the fourth quarter of 2008.

The FOMC issues its monetary policy decision at 2:15 PM, and you can expect its commentary to weigh heavily on market action. Given the new downside economic catalyst, pandemic influenza, expect ongoing quantitative easing efforts. Also, the Treasury plans to make its quarterly refunding announcement at 9:00 AM.

The Mortgage Bankers Association reports its weekly data on mortgage activity in the pre-market. In the week ended April 17, application volume improved, with the Market Composite Index rising 5.3%. The Easter holiday played a role, outweighing a small increase in contracted 30-year fixed rate mortgage rates, to 4.73%. Also, an increase in refinancings outweighed a decrease in purchase activity last week.

President Obama may have to change the focus of his scheduled prime time news conference, which is planned for 8:00 PM. We suspect his initial plan was for economic discussion, but progress of the Swine Flu may require a different sort of address to the American people.

Japan's markets are closed on Wednesday. The EIA issues its weekly Petroleum Status Report at 10:30. Last week's data indicated crude oil inventories rose by 3.9 million barrels last week, while gasoline increased by 0.8 million. Bank of America has its annual meeting, including an important vote that will determine whether embattled CEO Ken Lewis is reelected. Key shareholder interests stand opposed to Mr. Lewis as of the hour of publishing this report. Morgan Stanley's shareholders are also scheduled to meet on Wednesday.

The day's earnings schedule highlights news from Aetna (NYSE: AET), Qwest Communications (NYSE: Q), Southern (NYSE: SO), Starbucks (Nasdaq: SBUX), Baker Hughes (NYSE: BHI), Aflac (NYSE: AFL), Agnico-Eagle Mines (NYSE: AEM), Akamai (Nasdaq: AKAM), Akeena Solar (Nasdaq: AKNS), Amkor (Nasdaq: AMKR), ArcelorMittal (NYSE: MT), Barrick Gold (NYSE: ABX), Burger King (NYSE: BKC), CACI Int'l (NYSE: CAI), China Petroleum & Chemical (NYSE: SNP), Citrix Systems (Nasdaq: CTXS), Covance (NYSE: CVD), Drugstore.com (Nasdaq: DSCM), Everest Re (NYSE: RE), Express Scripts (Nasdaq: ESRX), First Solar (Nasdaq: FSLR), Flowserve (NYSE: FLS), FTI Consulting (NYSE: FCN), Genco Shipping (NYSE: GNK), General Dynamics (NYSE: GD), Goodyear (NYSE: GT), Green Mountain Coffee (Nasdaq: GMCR), GSI Commerce (Nasdaq: GSIC), Harman Int'l (NYSE: HAR), Human Genome Sciences (Nasdaq: HGSI), Jones Apparel (NYSE: JNY), Kaiser Aluminum (Nasdaq: KALU), Lithia Motors (NYSE: LAD), Medco Health (NYSE: MHS), MGIC Investment (NYSE: MTG), Moody's (NYSE: MCO), Navios Maritime (NYSE: NM), Oceaneering Int'l (NYSE: OII), Praxair (NYSE: PX), Regis (NYSE: RGS), Reynolds American (NYSE: RAI), Rockwell Automation (NYSE: ROK), Sanofi-Aventis (NYSE: SNY), SAP (NYSE: SAP), Sealed Air (NYSE: SEE), Siemens (NYSE: SI), Time Warner (NYSE: TWX), Visa (NYSE: V), Waste Management (NYSE: WMI), Wyeth (NYSE: WYE) and more.

Thursday

Thursday offers a busy slate, with three economic reports scheduled for before the opening bell. The market is always interested in the Weekly Jobless Claims data, reported at 8:30. New claims filers increased 27K last week to 640K. We believe Easter again played a role in keeping the prior week total subdued some. Economists again forecast 640K for this week. Whether we've seen the highs in weekly claims filings hinges on the fate of Chrysler, General Motors (NYSE: GM) and the auto supplier and dealer networks. Chrysler came to a favorable agreement with the UAW over the weekend that may help a Fiat absorption to occur before Chrysler would be forced to file for bankruptcy.

Labor costs are clearly pressured now by the depth of this economic downturn. We've seen major concessions from employee unions that prefer those over their constituents' unemployment. The Employment Cost Index still rose 0.5% in Q4 of 2008, as compared to Q3. Economists see the same rate of increase for the first quarter of 2009.

The Personal Income and Outlays data for March is also due at 8:30, rounding out the trio. We noted recently that the Core PCE Price Index proved critical to market movement on the day of report last month. While other factors may dull that effect this month (read Swine Flu), if prices remain stubbornly anchored on the consumer level again, expect shares to find the news as adequate enough reason for concern. Economists are looking for a 0.2% increase in the aforementioned index, which would match the 0.2% move for February. Personal Spending is seen unchanged, versus a 0.2% increase in February. Income is expected to have fallen by 0.2% from the prior month, versus a similar change in February.

One more economic data point is due at 9:45, the Chicago Purchasing Managers Index (PMI) for April. This reports' Business Barometer Index is expected to measure 35.0, versus 31.4 in March. The EIA Natural Gas Report, detailing the commodity's stockpiling or net usage, is due at 10:30 as usual.

Look for earnings news and calls from Motorola (NYSE: MOT), Viacom (NYSE: VIA), NYSE Euronext (NYSE: NYX) Procter & Gamble (NYSE: PG), ExxonMobil (NYSE: XOM), Dow Chemical (NYSE: DOW), Kellogg (NYSE: K), Affiliated Computer (NYSE: ACS), AmeriGas (NYSE: APU), Apache (NYSE: APA), Asset Acceptance (Nasdaq: AACC), AstraZeneca (NYSE: AZN), BorgWarner (NYSE: BWA), Cabela's (NYSE: CAB), Calamos Asset Management (Nasdaq: CLMS), Callaway Golf (NYSE: ELY), Carbo Ceramics (NYSE: CRR), Celgene (Nasdaq: CELG), Chiquita Brands (NYSE: CQB), CIGNA (NYSE: CI), Colgate-Palmolive (NYSE: CL), Comcast (Nasdaq: CMCSA), Corinthian Colleges (Nasdaq: COCO), Domino's (NYSE: DPZ), Ethan Allen (NYSE: ETH), Evergreen Solar (Nasdaq: ESLR), Fiserv (Nasdaq: FISV), Gentiva Health (Nasdaq: GTIV), Hartford Fin'l (NYSE: HIG), International Paper (NYSE: IP), Marathon Oil (NYSE: MRO), Martha Stewart Living (NYSE: MSO), MetLife (NYSE: MET), MICROS System (Nasdaq: MCRS), Monster Worldwide (NYSE: MWW), Morningstar (Nasdaq: MORN), National Fuel Gas (NYSE: NFG), Newell Rubbermaid (NYSE: NWL), Newmont Mining (NYSE: NEM), Nobel Learning (Nasdaq: NLCI), Noble Energy (NYSE: NBL), OfficeMax (NYSE: OMX), Quixote (Nasdaq: QUIX), Revlon (NYSE: REV), Travelers (NYSE: TRV), Tyco Int'l (NYSE: TYC) and more.

Friday

It's the first day of the new month! Markets in China, Hong Kong, Singapore, South Korea, Mexico and others will be closed for May Day.

In the US, however, automakers are due to report April's sales results. Last month, domestic sales improved in aggregate, to an annual pace of 6.9 million. That's still drastically short of the prior year level, but was above February's 6.3 million pace. While new incentive programs are in effect now, unemployment continues to rise and there remains a high level of concern regarding the bankruptcy potential for two out of the Detroit three. Despite the government's willingness to backstop warranties, we expect sales are being impacted. We expect that if we see GM secure itself for cash flow survival, there would be a resulting bump up in sales. Pent-up demand is building as the average age of vehicles on the road moves into record territory.

With a backdrop consisting of China calling for stress tests of reserve currencies and suggesting that nations turn to a one world currency system, it should be interesting to hear Timothy Geithner's views after he actively works on US/China relations in Washington on Friday. Recall, the Treasury Secretary put his foot in his mouth and then pulled it back out with regard to China and its alleged currency manipulation. St. Louis Fed President Bullard is also scheduled to address a group on Friday, so keep on the look out for any market moving comments from him.

The Reuters/University of Michigan Sentiment measure is expected to hold steady at 61.9, compared to the mid-April reporting. April's ISM Manufacturing Index is expected to improve to 38.3, compared to 36.3 in March. Needless to say, a reading below 50 still signifies economic contraction. March Factory Orders are due out at 10:00 a.m., with Bloomberg's consensus of economists forecasting a decline of 0.5%. February orders rose 1.8% on strong durable goods orders that have since pulled back.

The earnings schedule includes Metlife (NYSE: MET), Aon (NYSE: AOC), Allergan (NYSE: AGN), Ameren (NYSE: AEE), American Axle (NYSE: AXL), Apartment Investment & Management (NYSE: AIV), Black Hills (NYSE: BKH), Cameco (NYSE: CCJ), Chevron (NYSE: CVX), Clorox (NYSE: CLX), CNA Surety (NYSE: SUR), Consolidated Edison (NYSE: ED), Dean Foods (NYSE: DF), Federal Signal (NYSE: FSS), Fortune Brands (NYSE: FO), MasterCard (NYSE: MA), Nicor (NYSE: GAS), PNM Resources (NYSE: PNM), The Washington Post (NYSE: WPO) and a few more.

Saturday

Berkshire Hathaway (NYSE: BRK-A, BRK-B) and its legendary leader Warren Buffet hold their gala of an annual meeting in Omaha on Saturday.


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