updated 2/22/2005 7:49:32 AM ET 2005-02-22T12:49:32

Whenever Wall Street appears to be ready to push past its December 2004 highs, something happens to kick it back down again.

Major Market Indices

The something last week was inflation. With the Labor Department’s Producer Price index spiking up a surprising 0.8 percent for January, investors feared that the Federal Reserve, despite Chairman Alan Greenspan’s bullish assessment of the economy on Capital Hill last week, would have to raise short-term interest rates faster and higher than previously expected.

Without some good news for the overall economy, analysts and traders believe it will be difficult for the markets to surpass those late December highs in the short term, and that the market will waver at or below those levels for a while — perhaps even until the next earnings season in April.

Only strong job growth, better earnings outlooks from corporate America and better-than-expected productivity from the industrial sector could push the markets higher, and it will likely take weeks before any of those trends are readily apparent.

Last week, the markets tried but failed to break substantially above its December benchmark. For the week, the Dow Jones Industrial average fell 0.1 percent, the Standard & Poor’s 500 was down 0.34 percent, and the Nasdaq composite index dropped 0.87 percent.

The nation’s stock and bond markets were closed Monday for the Presidents’ Day holiday.

On tap: 4th quarter GDP, CPI figures
Wall Street is hoping for an improvement when the Commerce Department releases its revised gross domestic product figure for the fourth quarter on Friday. In the initial report last month, GDP rose at an annualized rate of 3.1 percent for the quarter, less than the 3.5 percent Wall Street expected at the time. Current expectations for the revision are also at 3.5 percent.

The Labor Department’s Consumer Price Index for January, due Wednesday, will also draw increased scrutiny due to the unexpectedly high PPI figure last week. The CPI, which measures the prices paid by consumers for goods and services, is expected to rise 0.2 percent, compared with a 0.1 percent drop in December. With volatile food and energy prices removed, “core” CPI is still expected to rise only 0.2 percent, level with December’s figure.

Home Depot improvement?
Retailers will be in focus this week, with many of the nation’s top retail outlets reporting their earnings. Leading the pack is Dow component Home Depot Inc., expected to earn 47 cents per share when it reports on Tuesday morning, up from 42 cents per share a year ago. The home improvement retailer’s stock has climbed 27.7 percent since it fell to $32.90 on Aug. 6, closing Friday at $42.02.

Federated Department Stores Inc., which has renewed talks to acquire May Department Stores Co., has seen its stock follow a similar path, climbing 31.6 percent from its Sept. 1 low of $43.11 to close Friday at $56.72. The company, which operates chains including Bloomingdale’s and Macy’s, is expected to earn $2.54 per share, up from $2.29 a year ago, when it reports on Tuesday morning.

Rival department store J.C. Penney Co. Inc. reports its earnings before Thursday’s session, and is forecast to earn $1.11 per share, up from 83 cents a year ago. Penney’s stock has seen a more steady rise over the past 52 weeks, climbing 56.5 percent from a 52-week low of $27.90 on Feb. 20, 2004, to close Friday at $43.65.

Fed meeting-minute watch
On Wednesday, the Federal Reserve will release the minutes from its Feb. 1-2 meetings. Since moving up the release of minutes to three weeks after the meeting, from six weeks, the play-by-play of the Fed’s meetings has been closely watched on Wall Street. When the Fed minutes from the Dec. 14 meeting, released the first week of January, showed some increased concern about inflation, stocks fell sharply.

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