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A Short Week for Long Faces on Wall Street

Markets: Investors fretting over interest rates, overvaluation will return from 3-day weekend with eyes on new economic data.


NEW YORK — U.S. stocks may be in for more stormy days after the long Memorial Day weekend, but investors hope the week's heavy dose of U.S. economic data, particularly May's unemployment report, can brighten Wall Street's gloomy mood.

Worries that stocks may be overvalued in the face of rising U.S. interest rates helped send equities on a stomach-churning ride last week, and analysts said it would be tough to soothe the market's frayed nerves.

With a four-day week following the long Memorial Day weekend and little in the way of earnings reports, financial market players will focus on U.S. data they hope will give clues to just how high interest rates may go.

But analysts also said the recent shift in market sentiment from greed to fear would make it difficult to prod U.S. stocks, and especially technology shares, out of their funk.

"People will be looking for signs of economic slowdown, but the evidence will have to be pretty convincing to bring the bulls back," said Alan Skrainka, chief market strategist at Edward Jones in St. Louis.

The Nasdaq composite index and Standard & Poor's index of 500 stocks last week wrapped up their fourth-straight losing weeks, their longest streak since August 1998.

Wall Street will hold its breath ahead of U.S. employment data the Labor Department is to release Friday. Economists in a Reuters poll predicted the data would show U.S. payroll numbers picked up slightly by 386,000 in May following 340,000 in April, with unemployment steady at the 20-year low of 3.9% hit in April.

Economists also predicted average hourly earnings data would show a 0.4% rate of increase in May, unchanged from April. Investors will keenly watch hourly earnings figures for signs of wage inflation, widely seen as a harbinger of price pressures in the broader economy and a key to the Federal Reserve's decision on interest rates.

But first, investors will get a measure of Americans' optimism about the economy when the New York-based Conference Board, a private research group, is expected to report Tuesday that consumer confidence probably fell to 136.1 in May from 136.9, a level that would still be high enough to suggest that the record nine-year U.S. expansion will continue.

Although the expected drop in the consumer confidence index would be the fourth in a row, the new number would still be close to the record high of 144.7 in January.

A separate report from the Conference Board, the index of leading economic indicators coming Thursday, probably rose 0.2% in April after rising 0.1% in March, analysts said. That report is intended to predict the economy's course in the coming six to nine months.

Also of note on the economic docket is the National Assn. of Purchasing Management's key monthly report on the manufacturing sector, due out Thursday. Economists surveyed predicted the index rose to 55.3 in May from 54.9 in April.

"The market focus is clearly on the purchasing managers' survey and the payroll numbers," said Hugh Johnson, chief investment strategist at First Albany Corp. "If there is going to be any evidence that the market is slowing to a more moderate pace, it has to come from the employment report. You just cross your fingers and hope for a softer read."

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