updated 6/8/2008 2:38:49 PM ET 2008-06-08T18:38:49

That economic rebound in the second half of the year so many experts have predicted — including Federal Reserve Chairman Ben Bernanke himself — is starting to look dicey.

Major Market Indices

Wall Street has just three weeks left until July starts, and signs of trouble keep surfacing.

Sure, there have been a few upbeat readings recently, including better-than-expected sales figures from some retailers and strong first-quarter worker productivity. But last week culminated in a spike in the unemployment rate and a huge leap in oil prices to back to record levels — two pieces of news that drove the Dow Jones industrials down nearly 400 points on Friday.

With jobs growing scarcer and energy costs still climbing, Wall Street’s big worry is that Americans are going to keep tightening their budgets — a shrewd move on the part of consumers, but an alarming prospect for companies that depend on them.

Last week, the Dow finished down 3.39 percent, the Standard & Poor’s 500 index closed down 2.83 percent, and the Nasdaq composite index ended 1.91 percent lower.

“The unemployment rate does little to assuage fears that the economy is in a correction that may take longer than estimated, and may be more severe than estimated,” said Lena Komileva, head of G7 market economics at British interdealer broker Tullett Prebon PLC.

Meanwhile, the causes behind oil’s record-breaking run remain confounding to the market — as does the effect of high oil prices on the economy. Recently, when the dollar falls due to weak economic data, it pushes up oil prices by making them appear cheaper to foreign investors. But typically, oil prices rise on signs of strong U.S. demand.

This paradox is going to make it hard for the Fed when it meets later this month to decide whether to alter interest rates.

“The fact that oil prices are counterintuitively driven by weak growth data will complicate the Fed’s reaction,” Komileva said.

What investors are going to be looking for in this week’s data are signals that the consumer is still able to spend despite higher commodities costs.

The Commerce Department on Thursday reports on retail sales. According to the average estimate of economists surveyed by Thomson Financial/IFR, the market is expecting retail sales to have rebounded by 0.4 percent in May following a 0.2 percent pullback in the previous month.

Then on Friday, the Labor Department reports on consumer prices. The Consumer Price Index is anticipated to have risen by 0.4 percent in May, a faster rate than April’s 0.2 percent increase. The core index, which strips out energy and food prices, is believed to have climbed by 0.2 percent, after rising by 0.1 percent in April.

The stock market will also remain focused on the state of the housing market and financial services sector.

On Monday, the National Association of Realtors on Monday releases data on pending sales of existing homes. Economists predict the April index will hold steady compared with last month at 83.0.

Some reports have also said Lehman Brothers Holdings Inc. could release its quarterly results this week, as opposed to next, due to the market’s concerns about its financial strength. The investment bank — cited by many analysts as the Wall Street firm with the most similar problems to the newly-acquired Bear Stearns — is also reportedly searching for capital from outside sources.

In addition to corporate and economic data, Wall Street will be paying close attention this week when Fed Chairman Ben Bernanke speaks at an economic conference in Chatham, Mass. Some other Fed officials — including New York Fed President Timothy Geithner, Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard and Fed Vice Chairman Donald Kohn — are also scheduled to speak this week.

Most Fed members have been expressing the belief that the first half of the 2008 would be weak and that the second half would still face headwinds but bring some improvement.

Going into this week, the stock market is less sure.

“You’re seeing more volatility creeping back in,” said Jack Caffrey, equities strategist at JPMorgan Private Bank. “It really feels like it’s a market that’s become more reactive than proactive. It feels like people are sitting on their hands, waiting for some signals to tell them what to do.”

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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