The Focus Shifts

Investors are likely to concentrate on corporate earnings in coming weeks, but questions about employment numbers will lurk in the background

By Joseph Lisanti

Economics is sometimes called the dismal science, but a better moniker might be the inexact science. When you are trying to measure something as complex as the economy, an uncertain data point here or a flawed assumption there can trip up even the best forecaster.

The inexactness of economics was brought home with the release of payroll numbers that showed 308,000 jobs added in the U.S. during March. After overestimating job creation for an embarrassingly long stretch, the nation's economists erred on the side of caution: They had forecast a little more than a third as many job additions in March.

Investors' fascination with employment numbers is likely to take a back seat to their interest in earnings reports in the weeks ahead. Standard & Poor's analysts believe that the S&P 500's operating profits for the quarter ended March will be 17% higher than in the same period a year ago. Although that is down from the 30% gain posted in the first quarter of 2003, we believe it will still be sufficient to give the market a boost.

Toward the end of the earnings report season, it will again be time for the government to release the payroll employment number for April. Standard & Poor's economists don't expect a repeat of the March gain, which may have been given an extra boost by the end of the California grocery strike and a surge of good-weather-related construction jobs.

The danger is that some people might consider the March employment figures a benchmark for gains in future months. If so, stocks could react negatively to what would otherwise be considered good employment news.

We believe that any such reaction is likely to be temporary. In our view, the continuing improvement in the economy is a principal reason to keep 70% of investment assets in stocks, with 55% in domestic equities and 15% in foreign.

Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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