(Reuters) - Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.
1/THE 'R' WORD
Warnings of a U.S. economic recession have been rife for months, but the greater risk could be that of a corporate trough on Wall Street first.
Expectations for first-quarter earnings per share on the S&P500 have gone negative, and average estimates are for a 0.3 percent year-on-year decline, according to I/B/E/S Refinitiv. That's a big markdown from October forecasts of 8.2 percent and would be the first earnings contraction in three years.
Gloom is deep on the other side of the Atlantic too, with European earnings growth seen at the slowest rate in 18 months.
For the S&P500, Q2 still indicates a tentative return to growth. That would allow Wall Street to avoid technical recession -- typically two consecutive quarters of decline. And analysts still project 4.2 percent full-year earnings growth.
U.S. comparisons with previous quarters are of course skewed by President Donald Trump's generous tax breaks, which handed companies a big windfall in early 2018 but have now expired.
The swift pace and depth of cuts to estimates are raising concerns this may be the start of a trend, as companies struggle with margin squeezes and debt. After all, as recently as December, Q1 earnings were seen expanding by 5.3 percent.
2/CROWDED HOUSE!
After a torrid 2018, a dovish turn by the U.S. Fed has brought investors back to emerging markets, with JPMorgan (NYSE:JPM), Citi, Fidelity, BlueBay and others upping exposure and advising clients to do so. The result: emerging markets were crowned the most crowded trade by Bank of America (NYSE:BAC) Merrill Lynch's monthly investor survey for the first time on record.
But that accolade has proved a mixed blessing in the past. After all, the only way one can go from the top is down. And those fiscal and geopolitical woes familiar to emerging markets may come back into play: Investors want to see what plans South Africa's Finance Minister Tito Mboweni might outline in his budget on Wednesday to tackle suffocating debt at state utility Eskom. With power outages haunting the economy, Eskom developments have undermined the rand as well.
Another emerging economy, Russia, is reeling under the prospect of new U.S. sanctions. Turkish President Tayyip Erdogan whose policies helped trigger a currency crisis last year, wants to expand a scheme to sell cheap vegetables after March 31 local elections, in a move widely considered financially unsustainable.
Finally Brazil's new government will put its pension reform bill to Congress. The critical overhaul is seen as a litmus test of the government's ability to implement reform.
3/JOBS FOR ALL
Amid signals of weakening U.S. economic momentum, the bright spot is the job market - more than 300,000 jobs were created to kick off the New Year. But one labor market measure is showing cracks: first-time claims for unemployment benefits. A month ago, initial claims were at a 50-year low, but they have moved sharply higher since mid-January. And if the weekly series seems a bit noisy, look at the less-volatile four-week average of claims -- these hit the highest in a year in the latest week.
The claims data is also a key component of Yardeni Research's "Boom-Bust Barometer" – a reliable indicator for U.S. stocks. It divides the CRB industrial raw materials spot index by the four-week average of jobless benefits claims, on the premise that if raw materials prices rise and the job market is strong, then the outlook for economic growth and equities is constructive.
The basic materials index topped out in mid-2018 and the four-week average of jobless claims appears to have bottomed in September. As a result, the "BBB" is at its lowest since the fourth quarter of 2017. It's diverged from the S&P500, which has snapped back from December's rout.
So keep an eye on those claims numbers on Thursday.
4/FLASH IN PAN
As mentioned, the R-word frequently passes analysts' lips these days. Could next week bring any relief?
On Thursday, we get a glimpse of the mood amongst purchasing managers when Japanese, U.S. and euro zone "flash" PMI data is released. They made for pretty gloomy reading last month -- euro zone PMIs for instance, were barely above the 50-mark which separates contraction from expansion, pointing to Q1 growth of just 0.1 percent. In Asia, China's factory activity shrank the most in almost three years, while Japanese factories were on the cusp of contraction.
Brexit-battered UK also stalled and even U.S. PMIs hinted at slowdown, though in much better shape than others.
It is unlikely markets' mood will be much improved by the PMIs. But China's latest trade data offered a glimmer of hope, showing that in January, exports surged and imports fell much less than in previous months. Whether that will show up in sentiment surveys elsewhere remains to be seen.
5/SANCHEZ SNAP IN SPAIN
There's nothing like an election and post-vote jostling to unnerve investors. So after last year's turmoil in Italy, could it be Spain's turn? Prime Minister Pedro Sanchez has called snap elections for April 28 and opinion polls show no single party would win enough votes to govern. Coalition scenarios point to lengthy negotiations between various parties - potentially including the far-right Vox.
Shades of Italy? Investors don't seem to think so and Spanish bonds and equities have not reacted much to the news. But plenty can happen in 2-1/2 months -- again demonstrated by the aggressive horsetrading over Italy's budget.
The countries are different. Spain may no longer be growing at 3 percent, and three years without a majority government have hindered progress on reform. But the country has done much of the painful stuff Italy hasn't and ergo, it has a growing economy. When investors fled Italy last year, Spain was the destination of choice. Political deadlock may spell bad news for their money.