As investors return this week from their Fourth of July vacations and prepare for earnings season, they’ll get a few snapshots of the economy’s health.
Wall Street is hoping for signs that the economy is on the rebound, but it doesn’t want to see growth that is so strong that it might make the Federal Reserve more inclined to raise interest rates to rein in inflation.
The Dow Jones industrial average — about 65 points below its record close reached June 4 — has waffled over the past several weeks as bond yields ballooned, stoking jitters about high rates putting a damper on deal-making and making stocks look less valuable than bonds.
Though most analysts say the stock market will keep wobbling until at least mid-July, when earnings reports are under way, a couple pieces of economic data this week could give investors some idea of where bond yields are headed and what the Fed might decide at its next meeting.
The Commerce Department reports Thursday on the international trade balance and Friday on retail sales. The trade deficit is expected to have widened to $59.0 billion in May from $58.5 billion in April, according to the consensus estimate of economists surveyed last Friday by Thomson Financial, while retail sales are anticipated to have risen about 0.3 percent, smaller than May’s jump of 1.4 percent.
The trade deficit, or the gap between what America sells overseas and what it imports, should tell investors how well U.S. exporters are faring, and give them an indication of how much prices are rising.
Any sign that inflation is accelerating could exacerbate worries about Treasury bond yields surging and a possible interest rate hike from Fed, which said last month it wants to see more evidence that inflation is truly under control. If investors are uneasy about inflation, the market could see a return of the turbulence that sent stock prices fluctuating in June.
Retail sales, meanwhile, will tell investors whether the U.S. consumer is staying resilient in the face of high energy prices and a sluggish housing market. Consumer spending has remained fairly strong despite the recent economic slowdown, and has given stock investors incentive to keep buying.
Last week, when the mid-week July Fourth holiday muted Wall Street’s dealings, the Dow rose 203.06 points, or 1.51 percent; the S&P 500 rose 27.09 points, or 1.80 percent; and the Nasdaq advanced 63.28, or 2.43 percent.
Wall Street will continue to closely monitor bond yields, which have risen since early June and stoked concerns about high rates crimping dealmaking. Investors will also keep an eye on crude-oil prices, which have been rising to their highest levels since last August. High energy prices accelerate inflation, and could prompt the Fed to consider a rate hike.
The Federal Reserve reports Monday on May consumer credit, which the market expects to rise $5.0 billion compared to April’s increase of $2.6 billion.
The Commerce Department releases data Tuesday on May wholesale inventories. The market anticipates a monthly rise of 0.6 percent, after April’s 0.3 percent uptick.
On Wednesday, Philadelphia Fed President Charles Plosser speaks at a seminar in London about housing prices and monetary policy.
On Friday, in addition to its retail sales data, the Commerce Department will report on June import and export prices and May business inventories — which analysts predict will rise 0.4 percent, the same as in April.
Also Friday, the University of Michigan will release its preliminary reading on July consumer sentiment, which the market forecasts will come in at 86.0, slightly higher than June’s final reading of 85.3.
The second-quarter earnings season doesn’t begin in full force until next week, but this week will bring a few notable reports.
On Monday, Alcoa Inc. is expected to report a second-quarter profit of 84 cents a share. The aluminum company closed at $41.66 last Friday, at the upper end of its 52-week range of $26.39 to $42.90.
On Wednesday, analysts predict Yum Brands Inc. will post a second-quarter profit of 36 cents a share. The fast-food chain operator closed at $34.05 Friday, at the upper end of its 52-week range of $22.11 to $34.50.
Genentech Inc. also releases its second-quarter results Wednesday, and analysts forecast a profit of 71 cents a share. The biotechnology company closed at $75.10 Friday, in the lower half of its 52-week range of $72.31 to $89.73.
On Thursday, Marriott International is expected to report second-quarter profit of 53 cents a share. The hotel operator closed at $47.11 Friday, at the upper end of its 52-week range of $34.30 to $52.00.