Optimism Rules on Wall St. But Data Lurks
By Elizabeth Lazarowitz

NEW YORK (Reuters) - Wall Street stocks are expected to chug higher this week as investors look past one of Corporate America's worst quarters in years and cling to hopes the weak economy will soon turn the corner.
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The market's mood could hinge largely on a slew of important economic data, including a key gauge of the manufacturing sector, the government's monthly employment report and data on personal income and spending.

``The market is looking for some clear sign as to where the economy is heading,'' Peter Gottlieb, portfolio manager at First Albany Asset Management, which oversees about $500 million in assets, said.

Recent data, including Friday's stronger-than-expected U.S. growth data, indicate a recovery is beginning, Gottlieb said. ''If that is confirmed by next week's data, I think that would be a positive for the market.''

Technology stocks slid last week, but many analysts said Wall Street has held up reasonably well in recent sessions in the face of a mixed bag of earnings reports.

``There is increasing confidence that the worst is over,'' said Uri Landesman, chief investment officer at AFA Management Partners LP., noting that many investors have not been reacting as dramatically to bad news.

About four-fifths of the companies in the S&P 500 have issued earnings so far, and profits have fallen 5.2 percent from a year ago, according to market research firm Thomson Financial/First Call. The earnings for the whole S&P 500 this quarter are projected to hit 7 percent, compared with profit growth of 23.6 percent a year ago.

``People are looking out over the horizon to the recovery and as we get closer to the recovery and have more evidence of it I expect (stocks) to trade higher,'' Landesman said.


HOPES FOR EASY FED TO OFFER SUPPORT

One of the factors behind investors' change of attitude was the Fed's surprise interest rate cut less than two weeks ago, when it slashed short-term interest rates by half a percentage point -- its fourth rate cut this year -- in a bid to rejuvenate the U.S. economy.

The action sparked a hefty rally on Wall Street, but stocks have backtracked somewhat since then, leaving the Standard & Poor's 500 (.SPX) down 5.1 percent for the year. Year-to-date the tech-heavy Nasdaq Composite Index (.IXIC) is down 16 percent, but the blue chip Dow Jones industrial average (.DJI) has climbed back into positive territory, up 0.2 percent.

On Friday, stocks rallied after preliminary U.S. growth data that indicated the U.S. economy expanded more than expected, topping off its 10th year of growth and fueling hopes for a rebound in corporate profits later this year.

``It's a glass half-full rather than a glass half-empty kind of mind-set out there,'' Landesman said. ``As the market becomes convinced that we're not heading into a protracted or deep recession, they'll be looking for an excuse to buy things.''

Nevertheless, some analysts said it will take time before earnings show signs of recovery as the Fed's two percentage-points of easing take hold and the troublesome backlog of goods evaporates.

``The macro news still is pretty ugly stuff,'' said Donna Van Vlack of Brandywine Asset Management, which has $7 billion under management.

``It's a question of: 'How long do the Fed's changes in interest rates and working through inventories take to allow things to truly get better?''' Van Vlack said. ``It's not going to happen in three months or even six months necessarily.''


WALL STREET TO FOCUS ON ECONOMY'S FATE

Barring any earnings surprises, investors will focus on a flood of data on the U.S. economy, including a report on income and spending, another on jobs, and the National Association of Purchasing Management's closely watched manufacturing sector survey.

The number of new jobs created in April is expected to total 5,000, according to a recent Reuters poll of U.S. economists. In March, 86,000 jobs evaporated. Unemployment is expected to tick up slightly to 4.4 percent in April from 4.3 percent in the prior month.

The report, set for release on Friday morning, is also expected to show average hourly earnings rose 0.3 percent versus the March's 0.4 percent gain.

Before that, Wall Street gets a dose of data on the consumer on Monday with personal expenditure and income figures. Economists forecast a 0.4 percent rise in income and a similar gain in spending in March, according to the Reuters survey.

The NAPM's survey of the manufacturing sector, set for release on Tuesday, is expected to read 43.8 in April from 43.1 in the prior month. Earlier this month, the sickly sector showed some signs of recovery after it posted its second straight gain in March.

Investors will also have their ears open for speeches by a number of Fed officials as they search for clues to whether and by how much the Federal Reserve will lower interest rates at its next policy-setting meeting on May 15.

The rush of earnings reports eases somewhat this week, although Wall Street still has a slew of corporate scorecards to pick through. Among the week's key reports: consumer products giant and Dow member Procter & Gamble (NYSE:PG - news) and wireless phone company Nextel Communications (NasdaqNM:NXTL - news) on Monday. Another consumer products maker, Newell Rubbermaid (NYSE:NWL - news) will report on Thursday.

Three drug store chains will issue results: Duane Reade (NYSE:DRD - news) on Monday, Rite Aid Corp. (NYSE:RAD - news) on Tuesday and CVS Corp. (NYSE:CVS - news) on Wednesday. Media companies Martha Stewart (NYSE:MSO - news) and Reader's Digest (NYSE:RDA - news) both report on Wednesday.

No. 2 U.S. restaurateur Tricon Global Restaurants (NYSE:YUM - news) issues its results on Tuesday, followed by hamburger chain Wendy's International (NYSE:WEN - news) on Wednesday.



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