This week on Wall Street will be all about American consumers and whether their spending habits are strong enough to support a steady advance in stocks.
Investors have already gotten an earful from the Federal Reserve about its stance on inflation, and by now have a good idea of how companies fared in the fourth quarter. This week's data will give investors a clearer snapshot of consumers: whether they're optimistic right now about the economy, or whether their buying power has been diminished by some of the more sluggish areas of the economy, such as the listless housing market.
Wall Street is betting on a relatively upbeat reading for the Conference Board's consumer confidence index, scheduled to be released Tuesday. As of Friday, analysts were expecting the index to slip only about a point from January's reading of 110.3, which was the highest in five years.
Investors are a bit more wary, however, about how much money Americans are spending on housing and the struggling U.S. auto industry.
On Tuesday, the National Association of Realtors' existing home sales figures are expected to show a slight rise for January, but Wednesday, the market anticipates the Commerce Department's new home sales data will indicate a decline last month. On Thursday, the market predicts the Commerce Department will report personal income and spending grew at a slower pace last month than in December, and that automakers will announce car sales edged a bit lower this month.
Disappointing data could fuel a larger correction in the stock market, which took a hit last week after a higher-than-expected consumer price index and a three-day rally in oil prices sparked worries that Americans could see inflation pick up. Rising prices at the consumer level don't just take a chunk out of people's budgets — they also raise the chance that the Federal Reserve will hike interest rates later this year, a move that could derail the steady upward trend in stocks over the past seven months.
The Dow Jones industrials fell 0.94 percent last week and the Standard & Poor's 500 index slid 0.3 percent, but the Nasdaq composite index managed to climb 0.75 percent. Adding to some of the drops last week were concerns about a possible collapse in the subprime mortgage market, which would hurt banks and other financial companies. Those worries will likely keep weighing on the stock and bond markets in the coming weeks.
Other reports due this week
On Tuesday, the Commerce Department is expected to show durable goods orders fell by 2 percent in January, a smaller drop than December's decline of 2.9 percent.
On Wednesday, the market predicts that the Commerce Department will report that fourth-quarter gross domestic product grew at an annual rate of 2.3 percent, more than a percentage point below the initial estimate of 3.5 percent.
Meanwhile Wednesday, the Chicago Fed's survey of regional manufacturing is expected to register a reading of 50.0 for February, up from 48.8 in January. The report is seen as a bellwether for the Institute for Supply Management's index of manufacturing activity for February, which the market predicts will come in Thursday at 50.0, up from 49.3 last month. A reading above 50 indicates expansion, and below 50 indicates contraction.
Investors will also be paying attention on Wednesday to a speech by New York Fed President Timothy Geithner in New York.
Thursday will also bring the Commerce Department's report on construction spending for January. Analysts are forecasting a dip of 0.4 percent, the same as in December.
On Friday, St. Louis Fed President William Poole will speak in Santiago, Chile.
Upcoming earnings reports
On Tuesday, Target Corp. is expected to release fourth-quarter earnings of $1.27 a share. The retail chain closed Friday at $63.10, at the high end of its 52-week range of $44.70 to $64.74.
Cablevision Systems Corp. is expected to report a fourth-quarter loss of 2 cents a share on Tuesday. The stock closed at $29.27 on Friday, at the high end of its 52-week range of $18.00 to $31.00.
The market anticipates that Federated Department Stores Inc. will report earnings of $1.53 a share on Tuesday. The retailer closed Friday at $44.29, at the high end of its 52-week range of $32.57 to $45.01.
On Wednesday, Sprint Nextel Corp. releases its fourth-quarter profit, which the market expects to come in at 28 cents a share. Sprint closed Friday at $19.27, in the middle of its 52-week range of $15.92 to $24.39.
On Thursday, American International Group Inc. is expected to report fourth-quarter earnings of $1.49 a share. The insurer closed at $68.79 on Friday, in the upper part of its 52-week range of $57.52 to $72.97.
Analysts predict Dell Inc. will release fourth-quarter earnings of 29 cents a share. The computer maker closed Friday at $24.19, in the middle of its 52-week range of $18.95 to $30.80.