updated 7/30/2006 3:35:18 PM ET 2006-07-30T19:35:18

Wall Street managed a solid advance last week, as investors grew cautiously optimistic that the Federal Reserve might finally be done hiking interest rates. But with so much lingering doubt about the economy and geopolitical tension, only one thing is certain: It’s not over until it’s over.

Major Market Indices

A sharp slowdown in gross domestic product growth during the second quarter gave investors a glimmer of hope that the Fed might indeed stop lifting rates at its Aug. 8 meeting after two years of consecutive increases. Although inflation measures extended beyond the Fed’s comfort zone, investors appeared to be convinced that the economy has slowed enough. The Dow Jones industrials had their best weekly percentage gain in more than a year.

“The market is telling the Fed, ’Hey, it’s time to stop raising rates,”’ said Rick Pendergraft, a research analyst with Investors Daily Edge. “Whether or not the Fed listens, that’s a different case.”

As always, this week’s economic data could upset investors or give them a reason to push stocks higher. Analysts nonetheless maintain that the market should continue fluctuating as a heightened distaste for risky investments keeps traders to the sidelines, particularly during the summer vacation months.

More signs of a gradually slowing economy in the Institute for Supply Management’s manufacturing index and the Labor Department’s monthly employment report this week would serve to bolster the outlook for interest rates. However, figures sharply above or below expectations would dismantle what little confidence Wall Street has managed to muster.

Meanwhile, the persistent stream of earnings reports presents opportunities for gains in individual sectors, Pendergraft said. The 64 percent of companies in the Standard & Poor’s 500 index that have already released results have seen average profit growth of 16.6 percent, with almost 70 percent beating analysts’ expectations.

“I think a lot of the bear sentiment that had been built up [during the May-June decline] caused people to get more skeptical of the market,” Pendergraft said. “We’re seeing a bigger pop than last quarter because we weren’t at this point in the cycle at the time.”

Mild economic news and strong earnings catapulted stocks last week. The Dow gained 3.23 percent, the S&P 500 added 3.08 percent and the Nasdaq composite index climbed 3.65 percent.

Tuesday morning, the ISM reports the July reading of its manufacturing index, which is also considered to be a critical gauge of economic expansion. Industrial activity is expected to edge up 0.2 points to 54; any level above 50 implies growth.

The Commerce Department also releases personal consumption data Tuesday, and the report should provide Wall Street with clues about consumer trends. Personal spending in June is forecast to rise 0.3 percent after growing 0.4 percent the previous month; growth in personal income is seen at 0.6 percent versus 0.4 percent in May.

Then on Friday, the Labor Department posts data on monthly job growth, widely considered to be a primary indicator of the economy’s health. Economist predict U.S. employers added 135,000 in July, up from 121,000 the month before. Wage growth is expected to slip to 0.3 percent after jumping to 0.5 percent in June.

Wall Street could also draw direction from the ISM’s services index on Thursday, as well as the Labor Department’s weekly update on applications for unemployment benefits.

Earnings from UAL Group Inc. Monday morning will be in the spotlight after the United Airlines operator said last week that it turned its first quarterly profit in six years. Analysts predict its profit at 64 cents per share, compared with a loss of 26 cents a year ago. The stock is near its 2006 low, down 36 percent from its March peak to end Friday at $27.52.

Procter & Gamble Co. posts its earnings Wednesday morning and should give investors a read on consumer strength. Its earnings are seen slipping to 54 cents per share from 52 cents last year. P&G has bounced back from a 52-week low of $53.18 in early June to finish Friday at $56.81.

Tyco International Ltd. releases its results Thursday morning, and analysts are looking for the manufacturer’s earnings to drop to 48 cents per share from 50 cents the year before. Tyco plunged in mid-January from a 52-week high of $31.04 and hasn’t yet recovered, ending Friday at $26.23.

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