Stocks probably will stick to a range this week as investors await the Federal Reserve's monetary policy decision and sort through a fresh batch of economic data for signs the recovery is still intact.
The Federal Open Market Committee is widely expected to keep interest rates steady and maintain its expectations for tame inflation and gradual jobs growth at its policy-setting meeting tomorrow.
While most investors are betting rates will stay low for at least the rest of the year, particularly given the previous week's unexpectedly soft labour market statistics, they will be listening keenly for any shift in the Fed's outlook.
"What's really important is how the FOMC characterises the labour market in their statement," said Jeff Kleintop, chief investment strategist at PNC Advisors, adding that any hint from the Fed that the jobs drought is more severe than currently thought could affect investors' interest-rate expectations.
Security jitters may also help temper investors' enthusiasm for stocks. The market retreated sharply after the deadly bombing in Madrid put investors on guard, compounding concerns that the market has already factored in expectations for better corporate profits after the strong stock rally in the past year.
Even after a hefty rebound on Friday, the three major US market gauges were off substantially for the week: The Standard & Poor's 500 index fell 3.14 per cent, the Dow Jones industrial average dropped 3.35 per cent, and the Nasdaq Composite Index fell 3.07 per cent.
Last week's losses pushed the Dow and the Nasdaq into negative territory for the year, down 2.05 per cent and down 0.93 per cent respectively. The S&P 500 still has a modest gain of 0.78 per cent for 2004.
Investors are hungry for evidence that US growth will remain robust in the months ahead, even after the impact of the government's attempts at economic and fiscal stimulus begins to fade.
"We'll continue to look for positive economic news, something to offset the jobs numbers," said Edgar Peters, chief investment officer at PanAgora Asset Management. "People will hook onto whatever we can get."
The flow of corporate earnings reports remains at a trickle this week, although a few companies will nab the spotlight with their results. From the financial sector, Bear Stearns and Morgan Stanley are both expected to issue their quarterly scorecards. Results are also on tap from General Mills Inc., the maker of Wheaties cereal, Betty Crocker cake mixes and Progresso soups; package delivery giant FedEx Corp., and the world's top athletic shoemaker, Nike Inc.