Wall Street may have found the nirvana it has long craved: economic middle ground.
Worries about inflation pushed stocks substantially lower in January, spurred by comments in the Federal Reserve’s Open Market Committee meeting minutes in which some Fed members expressed concerns about the possibility of higher prices.
But last week, economic data pointed to slowing economic growth, and Friday’s jobs report showed fewer jobs created in January than expected. But the economy is still growing, and jobs are still being created. And businesses find that consumers are still finicky enough that raising prices is not an option.
So the equation of modest economic growth, small gains in jobs and corporate America’s lack of pricing power all equals a lack of inflation. And for investors, that could be enough to put Wall Street’s January slump behind them.
Buoyed buyers are back
Stocks enjoyed their second straight week of gains last week, as buyers re-entered the market after successful elections in Iraq and a reassuring statement from the Fed on interest rates after its meeting Wednesday. The Fed said it will continue with a “measured pace” of rate hikes through the year, apparently unworried that inflation could become an issue.
For the week, the Dow Jones industrial average rose 2.77 percent, the Standard & Poor’s 500 climbed 2.7 percent and the Nasdaq composite index gained 2.5 percent.
Potentially market-moving economic reports will be in short supply in the week ahead, with most of them detailing December’s results. On Wednesday, the Commerce Department will release its wholesale inventory data for December. Economists are expecting inventories to rise 0.9 percent, slowing down from the 1.1 percent growth rate seen in November.
On Thursday, the nation’s trade balance for December will be released by the Commerce Department. Economists expect the trade deficit to have improved to $57.4 billion in December, after the deficit rose to $60.3 billion in November.
Tech bellwethers report
Earnings season is winding down, with about 70 percent of the S&P 500 having already reported. Overall, the season has been fairly positive, which has helped fuel buying over the past few weeks.
A pair of technology bellwethers report this week. Cisco Systems Inc.’s share price has suffered as technology spending has fallen, and the stock closed Friday at $17.90, 33 percent off its 52-week high of $26.70 on Feb. 2, 2004. Cisco is expected to earn 22 cents per share when it reports on Tuesday afternoon, up from 18 cents in the year-ago quarter.
Dell Inc. has fared much better, closing Friday at $41.51, just 2.5 percent off of its 52-week high of $42.57, reached on Dec. 9. The computer manufacturer is expected to earn 36 cents per share, up from 29 cents per share last year, when it reports after Thursday’s session.
Financials declare this week
The financial sector also will be well represented, with Prudential Financial Inc. and MetLife Inc. reporting earnings. Prudential, reporting after Tuesday’s session, is expected to earn 79 cents per share, up from 64 cents per share in the year-ago quarter. The stock closed Friday at a new 52-week high of $56.20.
MetLife Inc., fresh off its $11.5 billion deal to purchase Citigroup Inc.’s Traveler’s Life and Annuity division, will announce earnings Wednesday afternoon. The insurer is expected to earn 83 cents per share, up from 74 cents per share last year. The stock closed Friday at $40.52, down 2.4 percent from its 52-week high of $41.81 on Jan. 19.
On Monday, President Bush will unveil his federal budget proposals. While usually not a market-moving event, a failure to rein in spending could create pessimism on Wall Street.