updated 11/13/2005 3:09:06 PM ET 2005-11-13T20:09:06

Earnings reports from Wal-Mart Stores Inc. and the latest inflation data are due in the week ahead, and could potentially drive the market toward its long-awaited “Santa Claus” rally.

Major Market Indices

Or give investors the holiday blues.

With oil prices well below $60 per barrel for the first time in months, inflation and fourth-quarter retail sales remain Wall Street’s major preoccupations. High inflation means the Federal Reserve will continue raising interest rates which, while keeping prices in check, makes economic expansion far more difficult.

But if the Labor Department’s latest pricing data shows modest inflation, that means consumer prices will remain low. And while the consumer is certainly bound to wrestle with high energy prices this winter, there’s a chance people will spend enough money this holiday season to keep the economy growing briskly.

A lot of things have to come together for Wall Street to enjoy its traditional end-of-year Santa Claus rally: low inflation, lower energy prices, strong retail sales and bullish earnings forecasts from major companies.

But things change quickly. A few weeks ago, none of these things seemed likely. But in the week ahead, benign inflation data could combine with strong earnings from Wal-Mart and other major Dow Jones industrials to finally give the markets a push over levels of Dec. 31, 2004.

In last week’s trading, falling oil prices helped the markets to their third straight week of gains. For the week, the Dow gained 1.47 percent, the Standard & Poor’s 500 index climbed 1.19 percent and the Nasdaq composite index rose 1.52 percent.

PPI, CPI numbers due out
The Labor Department’s Producer Price Index and Consumer Price Index will set the tone for the markets early in the week. Both are expected to remain low, but a higher-than-expected number for either could prompt the market to give back the previous week’s gains.

On Tuesday, the PPI is expected to rise just 0.1 percent in October, compared to a 1.9 percent gain the previous month due to high energy prices. With energy and food prices removed, so-called “core” PPI is expected to climb 0.2 percent, down from 0.3 percent in September.

The CPI, due out Wednesday, is expected to come in with 0.1 percent growth, compared to September’s 1.2 percent hike. Core CPI, again with energy and food prices removed from the equation, is expected to rise to 0.2 percent in October from 0.1 percent the previous month.

The Commerce Department releases its retail sales figures for October on Tuesday. Sales are expected to decline 0.6 percent for the month, compared to a 0.2 percent increase in September, but much of the declines are pegged to disappointing car and truck sales. With automotive sales removed, retail sales are expected to climb 0.3 percent for October, better than September’s 0.1 percent gain.

Earnings coming from Home Depot, Wal-Mart, AIG
Although the third-quarter earnings season is winding down, a number of big corporations are due to report earnings in the week ahead, including Home Depot Inc., the Walt Disney Co., American International Group Inc. and Starbucks Corp. But a few earnings reports stand out.

With Wal-Mart’s multibillion-dollar revenues and leading place in the nation’s economy, investors will naturally watch closely when the retailer posts its earnings Monday morning. The company is expected to earn 57 cents per share, up from 54 cents per share in the third quarter of 2004. Wal-Mart shares dropped sharply in the late summer and early fall, but have recovered somewhat since oil prices started falling. Wal-Mart Stores Inc. is up 15.8 percent from its 52-week low of $42.31 on Sept. 22, closing Friday at $49.

Whither H-P, Tyco?
In the tech sector, Dow component Hewlett-Packard Co. has had a much better year after stumbling for much of 2004. H-P stock is up 51 percent from its 52-week low of $18.89 on Jan. 28, closing Friday at $28.52. The computer and printer maker is expected to earn 46 cents per share, compared to 41 cents per share a year ago, when it reports after Thursday’s trading session.

Industrial conglomerate Tyco International Ltd. will also bear watching when it reports its earnings Wednesday morning. Tyco is expected to earn 46 cents per share in its fiscal fourth quarter, down from 50 cents per share in the fourth quarter of 2004. Tyco shares have fallen sharply over the past year, down 26.9 percent from their 52-week high of $36.58 on Jan. 19 and closing Friday at $26.73.

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