updated 11/6/2005 4:04:17 PM ET 2005-11-06T21:04:17

Wall Street just closed its second straight week of substantial gains that helped erase the memory of a truly scary October, and investor sentiment remains high. But long-term economic problems remain, and that has traders wondering whether the market has enough going for it to keep fueling the rally.

Major Market Indices

Several reports showed last week that the economy entering the fourth quarter had weathered the disruptions caused by Hurricanes Katrina and Rita far better than expected. That doesn’t mean economic growth won’t slow — most folks on Wall Street believe it will. It’s just that it’ll be slowing from a much better place than people thought.

There are still major hurdles, however, for the economy and the stock market. Consumer spending in the fourth quarter remains a question mark. Energy prices remain high, and home heating prices this winter could be more brutal than the weather. If the consumer doesn’t continue spending, then corporate profits shrink and the economy slows further.

Energy costs concern Greenspan
And outgoing Federal Reserve Chairman Alan Greenspan, while remaining bullish on the economy, said last week he remains concerned about high energy prices triggering overall inflation. So expect the Fed to continue raising rates, which also slows the economy.

How slow is too slow? Wall Street can’t answer that right now. Until it does, stocks will ultimately be hard pressed to move higher than they are now.

Last week, with a raft of good economic news encouraging investors, the Dow gained 1.23 percent, the Standard & Poor’s 500 index rose 1.81 percent and the Nasdaq composite index climbed 3.81 percent.

There are only a handful of economic reports worth noting in the week ahead, the most important of which is likely the University of Michigan’s consumer sentiment index.

Consumer sentiment expected to rise
Once again, economists are predicting an improvement in consumer sentiment, as they have for the past couple of months. But in the late summer and early fall, with gasoline prices at $3 per gallon, it was hard for consumers to keep their heads up. And so the various measures of how Americans were feeling dropped sharply.

Now, however, with gas prices falling somewhat and the winter heating season not yet in full force, consumers’ moods are far more likely to improve. The University of Michigan’s preliminary index, due out Thursday, is expected to come in at 75.9, up from 74.2 last month. And it might actually hit the target this time.

In other economic news, the Labor Department will report on October’s import and export prices, a key gauge for inflation-watchers, on Thursday. Wall Street hopes import prices, with oil costs removed, will decline from the 1.2 percent gain seen in September. Export prices rose 1.1 percent in September.

Dell, Target, Federated report
Dell Inc. lowered its third-quarter profit estimates last week, so it’s unlikely that the company’s stock, or tech stocks in general, will get a boost when the personal computer maker posts its earnings Thursday afternoon. The company is expected to earn 39 cents per share, up from 33 cents per share in the third quarter of 2004. Dell stock has tumbled 30 percent since its 52-week high of $42.57 on Dec. 9, 2004, closing Friday at $29.76.

Investors will look to a pair of major retailers for hints about consumer spending. Discount retailer Target Corp. has had a far better year Dell, up 26 percent from its 52-week low of $45.55 on April 29 to close Friday at $57.41. The company is expected to earn 44 cents per share for the third quarter, up from 37 cents per share last year, when it reports earnings before Thursday’s trading session.

Federated Department Stores Inc. is expected to earn 22 cents per share, down sharply from 42 cents per share a year ago, when it reports earnings Wednesday morning. Concerns about consumer spending and cuts required from its recent acquisition of May Department Stores Co. have hurt the stock, which is off 18 percent from its 52-week high of $78.05 on Aug. 1. Federated closed Friday at $64.14.

Friday, Nov. 11, is Veteran’s Day, and the government bond market will be closed for the holiday. The nation’s stock markets will be open for business, but trading is customarily light on such holidays.

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