Volatility could be the name of the game on Wall Street this week as rising crude oil prices revive inflation fears and stock investors await congressional testimony from Federal Reserve Chairman Ben Bernanke.
Investors hope Bernanke will speak plainly about how he sees the outlook for U.S. interest rates in the months ahead after recent data showing the economy is strong.
The outcome of the weekend’s Group of Seven finance ministers’ meeting will get attention early this week as investors consider its impact, if any, on foreign-exchange rates.
Oil climbed back above $60 a barrel last week as OPEC member Nigeria reduced exports and tensions grew between the United States and Iran over Iran’s nuclear program. Temperatures below freezing persisted in much of the United States and spurred demand for heating oil and natural gas.
Stock trading this week could prove choppy if oil prices rise much further, analysts said.
“Crude and housing are the wild cards for this market,” said Harry Clark, president and CEO of Clark Capital Management Group in Philadelphia. “If crude goes above $60 to $65 a barrel, that could give the market a correction.”
Stocks fell last week despite a spurt of deal news, solid profits from bellwethers including Cisco Systems and a sparkling market debut by Fortress Investment Group. The Dow Jones industrial average fell 0.6 percent, the Standard & Poor’s 500 index slipped 0.7 percent and the Nasdaq composite index dropped 0.65 percent.
A spike in crude oil prices lifted shares of energy companies such as Exxon Mobil Corp., it hurt the broader market as it stirred fears of runaway inflation.
Wall Street will get readings on inflation and the housing sector Friday, when the government releases the Producer Price Index and housing starts for January.
Events in Iran, an OPEC member locked in a nuclear dispute with the West, also have the potential to sway the U.S. stock market this week. Iran is marking the anniversary of the 1979 Islamic revolution this week, and there has been speculation that the country might announce progress in expanding the uranium enrichment capacity of its “industrial-scale” plant at Natanz.
Housing starts will merit more attention than usual after last week’s bombshells about bad home loans and slower orders for new homes. Britain’s HSBC Holdings Plc warned of rising defaults in its U.S. mortgage business that caters to Americans with poor credit histories, while luxury home builder Toll Brothers Inc. projected a 19 percent drop in home-building revenue in the first quarter.
Bernanke’s testimony on Capitol Hill is set for Wednesday and Thursday, starting each day at 10 a.m. The Fed chairman will speak Wednesday to the Senate Banking Committee and Thursday to the House Financial Services Committee.
A recent run of strong U.S. data, including a report on unexpectedly robust fourth-quarter productivity, has prompted investors to lower expectations for an interest-rate cut in the first half of the year.
The benchmark federal funds rate has been held at 5.25 percent since last June.
Financial markets now look for the Fed to stay on hold for some time.
“Anything (from Bernanke) that signals that we’re heading towards an interest-rate hike, or maybe not an interest-rate decrease as fast as people want could lead to a dip down here,” said Joseph Saluzzi, co-manager of trading at Themis Trading in Chatham, N.J.
With the earnings season winding down, investors will seek direction from the economic data, including the international trade deficit and retail sales.
Companies due to report earnings include insurer MetLife Inc., and Coca-Cola Co.
January retail sales are due Wednesday at 8:30 a.m.