After solid gains for the first quarter, the market started the second quarter off on an optimistic note. However, the optimism failed to continue during the holiday curtailed week amidst the U.S. Federal Reserve chairman's comments on the economy, and the lingering concern over debt crisis in Euro Zone, specifically Spain.
Additionally, the expectations for QE3 seemed to be waning and gave bears more leverage to hold sway over the market. As if these were not enough, Friday's nonfarm pay rolls came in below expected levels.
The market has been waiting for a correction since the current rally has endured in an uncertain worldwide economic conditions during the last five months. In a way, the correction in the stocks could provide fresh buying opportunities for value stocks at lower rates.
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Global cues also failed to provide any impetus for the markets to move up. Economic data from the U.K., China and Germany were below expectations and further depressed market sentiments.
Traditionally, April is a month of gains. However, whether the current year will continue to the trend or buck remains a question. Although the first half of the month may witness weakness, earnings season could dictate the movements of the stocks during the second half of the month.
Significantly, the world's largest aluminum producer Alcoa (NYSE: AA) will kick start earnings season on Tuesday. Just ahead of it, the company announced production cut thus indicating what is in store for the investors. Before the first quarter results, the company resorted to a similar production cut to lift aluminum prices. The company suffered a loss in the fourth quarter, and the expectation is that it may report a loss for the first quarter too. Whether AA's loss is smaller or wider than estimated could dictate the markets movements.
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If earnings season turns out to be muted, then the chances of April bucking the traditional trend looks unlikely. This is because of the fact that the month May is a weak one. Yet, economic indicators could lift market sentiments.
For the week ended April 5, the S&P 500 posted a loss of 20.96 points or 1.48 percent to finish the shortened week at 1,398.08. The Dow Jones Industrial Averages shed 151.9 points to end the week at 13,060.14. The Nasdaq ended the week with a loss of 11.07 points or 0.36 percent to close the week at 3,080.5. Significantly, S&P 500 finished below the psychological mark of 1,400 points. This is a third time in thirteen weeks that S&P 500 closed lower.
Employment figures came in below economists' expected levels. Nonfarm payrolls added by 120K for March, while economists estimated over 200K jobs. Jobless claims slipped to 8.2 percent from 8.3 percent in February as the labor force participation rate edged down modestly.
The two ISM surveys for March provided a mixed bag of sentiments.