Investors are feeling listless. The Dow Jones industrial average sliced back below the 18,000 level late las week, taking it back below the benchmark level the index first crossed back in December.
A cavalcade of niggling worries are weighing on sentiment: looming interest rate hikes, a possible Greece exit from the Eurozone, disappointing economic data. The result has been a downward drift in measures of market breadth, reflecting the narrower slice of stocks that are pushing higher. You can see this in the uncomfortable looking declines underway in Dow components like Procter & Gamble (PG) and Walmart(WMT).
The flow of macroeconomic data is sure making it hard for the optimists. On Friday, the government said first-quarter GDP growth shrank 0.7 percent, down from an already paltry initial estimate of 0.2 percent. Economist pointed to a wider trade deficit as the main reason for the decline, a consequence of the U.S. dollar's strengthening over the past year.
Separately, the Chicago Purchasing Managers Index, which measure manufacturing activity, slid into negative territory after a bounce in April, suggesting ongoing issues in the factory sector.
The specter of interest rate hikes by the Federal Reserve -- the spooky catalyst that's been bothering investors all year -- will intensify as the calendar flips to June with the employment situation report on Friday.
Job growth bounced back in April after a plunge the previous month blamed largely on severe winter weather. With the unemployment rate already at 5.4 percent, the economy adding at least 200,000 jobs in May will raise the pressure on the Fed to raise rates later this year for the first time since 2006. Deutsche Bank economists are looking for a 275,ooo payroll print and a one-tenth decline in the jobless rate to 5.3 percent.
This will be the last jobs report before the Fed convenes for its June 17-18 policy meeting. Not only could the Fed throw the market a curveball and unexpectedly raise rates but policymakers are due to update their individual projections of where interest rates and the economy are headed. Known as the "dot plot," this Summary of Economic Projections will be closely watched for the likely timing of rate liftoff later this year.
The Fed's last SEP data, which caused a market rally in March when it reflected a less aggressive path of rate hikes, remains much more hawkish than where the futures market is. Either the Fed comes down to where traders are (a dovish response) or it sticks to its guns (a hawkish response) and risks unsettling markets.
Another economic release that will be closely watched this week for clues on Fed action will be the personal income and consumption data on Monday. That could confirm both a turnaround in wage inflation and rising consumer prices, both of which the Fed has said it wants to see before taking action on interest rates.
All of this is happening as stocks push deeper into what is seasonally the worst performing period of the year (May through September). As a result, June is likely to be much bumpier and more exciting than what we've seen over the last five months. Stay tuned.