Economic data on watch as sleepy stock market awaits earnings season

Economic data, wrapping up with Friday’s March jobs report, will be the big focus before earnings season ramps up in mid-April as investors seek to confirm the viability of forecast Federal Reserve rate hikes this year.

The stock market finished higher for the week and turned in solid gains for the quarter on Friday. The Dow Jones Industrial Average

DJIA, -0.31%

 rose 0.3% for the week and 4.6% for the quarter, the SP 500 index

SPX, -0.23%

 gained 0.8% on the week and 5.5% for the quarter, and the Nasdaq Composite Index

COMP, -0.04%

 surged 1.4% for the week to notch a nearly 10% gain for the quarter.

Stocks are coming off their least volatile quarter in decades with the Dow industrials averaging a 0.3% change per day, the most steady quarter since the fourth quarter of 1965, according to Dow Jones data. The SP 500 also averaged a daily change of 0.3% during the quarter, its least volatile since the third quarter of 1967.

Additionally, the CBOE Volatility Index

VIX, +7.19%

 logged its second lowest quarterly closing level ever at 11.68, according to Dow Jones data, the only other quarter with a lower average was the fourth quarter of 2006.

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Absent any market-shaking “black swan” event, stocks are expected to remain in a relatively calm holding pattern until mid-April, when corporate earnings reports begin coming out. Analysts surveyed by FactSet expect first-quarter earnings to rise nearly 10% from their year-ago levels, due to a recovery in the energy sector. Until then, investors will have to content themselves with a week of economic data, notably the March jobs report and unemployment rate on Friday.

Economists polled by MarketWatch expect the addition of 235,000 jobs and an unemployment rate of 4.7%.

Given that economic data has so far justified Fed members from consistently forecasting at least two more rate hikes this year, however, does not guarantee they’ll materialize.

“We haven’t gotten away from a data-dependent Fed,” said Paul Nolte, portfolio manager at Kingsview Asset Management, in an interview, who characterized economic data so far as “OK, not fabulous.”

Noting the market has been promised four rate hikes in a year before and managed to get only one, Nolte likened the Fed’s hawkish posturing to a driver putting on the brakes while approaching a red light. If the signal changes, then the action changes. A sudden change in economic data could quickly send the Fed back to the drawing board with regards to their rate hike schedule, he said.

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With Republicans pulling their bill on health-care reform last week, it should be months before anything significant comes out of Washington that could produce a major change in stocks, said Mark Kepner, managing director of sales and trading at Themis Trading, in an interview.

That puts the spotlight on first-quarter earnings, and until they come out, economic data will remain the focus with the Friday jobs report being paramount.

“Economic data still continues to be impressive,” Kepner said. “Inflation is pretty much where the Fed wants it, so that could justify two more rate hikes this year.”

Outside of the Friday jobs report, both the Markit and the Institute for Supply Management manufacturing gauges come out Monday, as well as March car sales, February trade deficit and factory orders are released on Tuesday, and the March ADP employment data as well as Markit and ISM’s services data come out on Wednesday.

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