After a jump in Treasury yields fueled a long-anticipated stock retreat last week, Wall Street will be watching upcoming inflation data to see if its interest rate jitters were justified.
Analysts are split on whether the climbing 10-year Treasury note yield poses a genuine threat of a rate hike by the Federal Reserve, or if its foray above 5 percent has simply been an excuse for investors to lock in profits before resuming the stock market’s record-breaking run.
A key factor in deciding whether Wall Street regains its footing or flounders will be this week’s reports on producer and consumer costs, and if they suggest inflation is rising fast enough to set a tightening policy back into motion. The Fed has kept the benchmark interest rate on hold at 5.25 percent since last summer, after about two years of gradual increases.
The Labor Department’s producer price index, scheduled to be released Thursday, is expected to have risen 0.5 percent, lower than April’s 0.7 percent gain, according to the median estimate of economists surveyed last Friday by Thomson Financial. However, economists predict the core PPI, which strips out food and energy prices, will have increased 0.2 percent, up from a flat reading in April.
The consumer price index — the more closely-watched indicator, which will be released Friday — is expected to have ticked up 0.6 percent, compared to 0.4 percent in April. The core CPI is expected to have advanced 0.2 percent, the same as in April.
Last week, the Dow Jones industrial average dropped 1.78 percent, while the S&P 500 fell 1.87 percent and the Nasdaq lost 1.54 percent. The Dow and the S&P had closed at record highs last Monday.
Other economic data
The Commerce Department on Wednesday will release its monthly reports on retail sales and business inventories.
The market projects that retail sales rose 0.7 percent in May, compared to a 0.2 percent loss in April, and that business inventories increased 0.4 percent in April, up from a 0.1 percent decline in March.
Also Wednesday, the Federal Reserve issues its Beige Book, which gives snapshots of business activity in various regions around the country.
On Thursday, the Philadelphia Fed releases its June index on regional manufacturing.
On Friday, in addition to the data on consumer prices, investors will be examining the Federal Reserve’s report on industrial production and capacity utilization and the University of Michigan’s preliminary reading on consumer sentiment. Economists predict that industrial production rose 0.2 percent in May, a smaller gain than the 0.7 percent gain in April; capacity utilization held steady in May at 81.6 percent; and consumer sentiment in June held steady compared to May.
Also Friday, the New York Fed releases its June index on regional manufacturing.
This week will also feature speeches from Cleveland Fed President Sandra Pianalto, Chicago Fed President Michael Moskow and Atlanta Fed President Dennis Lockhart.
Major financial firms Lehman Brothers Holdings Inc., Bear Stearns and Goldman Sachs release their second-quarter earnings results this week.
Lehman Brothers is expected to report Tuesday a profit of $1.88 a share. Lehman closed at $74.19 Friday, in the upper half of its 52-week range of $58.37 to $86.18.
On Thursday, Bear Stearns is expected to post a profit of $3.50 a share, and Goldman Sachs is projected to report earnings of $4.79 a share. Bear Stearns closed at $147.81 Friday, in the middle of its 52-week range of $120.10 to $172.61, while Goldman closed at $225.06, at the upper end of its 52-week range of $136.79 to $233.97.