The dollar's rebound and oil's tumble breathed some serious optimism into Wall Street last week. But no one knows for sure yet whether the two trends are truly antidotes for what's been ailing the stock market.
This week, investors will be focusing again on the U.S. currency and the energy markets, but also on retail industry reports to gauge consumer spending.
Consumers would certainly benefit from lower food and fuel costs, but they also still face falling home prices, huge debt loads and an uncertain job market. If it appears that they are struggling severely, the recent decline in energy prices might not be enough to sustain a stock market rally.
On Wednesday, the Commerce Department reports on retail sales in July, after spotty sales figures released by individual retailers last week. According to the median estimate of economists surveyed by Thomson Financial/IFR, the data is likely to show flat sales for the month compared with June, when retail sales jumped by 1 percent.
Some major retailers are also releasing their quarterly results this week. Those companies include Wal-Mart Stores Inc., Macy's Inc., JCPenney Co., Kohls Corp., Abercrombie & Fitch Co. and TJX Cos., which operates T.J. Maxx and Marshalls.
Last week, the Dow Jones industrial average rose 3.60 percent, the Standard & Poor's 500 index rose 2.86 percent, and the Nasdaq composite index rose 4.46 percent. All three major indexes posted their biggest weekly gains since April.
A huge chunk of the gains came Friday, when the U.S. dollar soared against its main rival currencies. That helped drive the stock market's rally, and a sell-off in commodities ranging from crude oil to gasoline to corn to soybeans.
A big rally came earlier in the week, too, on Tuesday, after the Federal Reserve said "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports."
But as any investor will tell you, the markets have been extremely volatile, and calling a top or a bottom to a market is a tough endeavor.
Moreover, there are many economists who say the weak dollar has actually been what's keeping the United States from sliding into a severe recession. The reason is exports — when the dollar is low, U.S. goods are cheap to foreigners.
"The main source of support for the U.S. economy in recent quarters has been the strength of net exports," wrote Bernard Connolly of Banque AIG Research in a note Friday. "But the world economy has fallen off the edge of a cliff."
Last month, the Commerce Department said the trade gap narrowed in May thanks to record-high exports. The department on Tuesday releases its June reading on the trade deficit, which is expected to have widened again.
In other economic data, the Labor Department on Thursday releases its index of consumer prices for July — economists are anticipating a rise of 0.4 percent, or 0.2 percent after stripping out food and energy prices.
And on Friday, the University of Michigan reports on consumer sentiment for the first part of August. Economists predict a modest rise.