Wall Street appears to have finally gained some ground after a disastrous January.
With the Dow Jones industrial average finally up for the year as of Friday, the markets are just about on par with where they were at the height of 2004’s fourth-quarter rally, though the Nasdaq composite index still lags considerably.
The question remains, however, whether stocks can now move higher still, or whether the markets will be stuck in a trading range, at least for the short-term. The answer will depend on the strength of the economic data coming out in the week ahead, in addition to earnings reports from the few remaining Dow components yet to release their fourth-quarter results.
Strong earnings, of course, never go out of style for investors, but Wall Street’s reaction to economic data has been touchy of late. Investors seem to favor tepid economic growth at the moment — strong enough so that there is indeed measurable progress in the economy, but weak enough so that inflation remains a non-issue.
Last week, the major indexes posted their third straight week of gains, bolstered by decent economic news and solid earnings. The ouster of Carly Fiorina, Hewlett-Packard Co.’s chief executive, fueled a strong rise in the Dow, while the Nasdaq lagged behind, weighed down by disappointing tech sector earnings.
For the week, the Dow rose 0.75 percent, the Standard & Poor’s climbed 0.19 percent, and the Nasdaq fell 0.48 percent.
Commerce on retail sales, housing starts
A broad swath of economic data due out this week should help investors get a better picture of the economy. On Tuesday, the Commerce Department reports on retail sales for January, which are expected to decline 0.4 percent after December’s 1.2 percent gains. Most of that loss is expected to be due to falling auto sales; with auto sales removed from the equation, retail sales are expected to rise 0.4 percent for the month.
A Commerce report on housing starts and building permits is due Wednesday. Analysts expect housing starts to fall to an annual rate of 1.39 million in January, down from just over 2 million in December. Permits are likewise expected to fall slightly.
Two important gauges of industrial activity are due out this week. On Wednesday, the Federal Reserve will release its capacity utilization and industrial production figures. Wall Street expects production to have risen 0.3 percent for January, with the nation’s factories running at 79.3 percent capacity. Production rose 0.8 percent in December, with capacity utilization at 79.2 percent.
And on Friday, the Labor Department is scheduled to release its Producer Price Index, which measures wholesale prices. The PPI was expected to rise 0.3 percent in January, up from a 0.7 percent decline in December, which was fueled by a sharp drop in oil prices. With volatile oil and food prices removed, the PPI was expected to climb 0.2 percent, up from a 0.1 percent gain in December.
Fiorina-less H-P reports
Given the resignation of Fiorina last week, analysts aren’t expecting Hewlett-Packard’s earnings to impress.
The company has struggled over the past few quarters to grow its enterprise consulting business, one of the few high-margin businesses in technology, while maintaining market share and preserving slim margins in its printer and computer divisions, under heavy pressure from Dell Inc.
H-P shares are up 25.6 percent from their low of $16.95 on Aug. 12, closing Friday at $21.30. The company is expected to earn 36 cents per share, up a penny from a year ago, on revenues of nearly $21 billion when it releases its earnings after Wednesday’s session.
On Thursday, fellow Dow component Wal-Mart Stores Inc. is forecast to earn 74 cents per share, up from 63 cents per share in the year-ago quarter, on revenues of $82.7 billion. Sagging consumer confidence has taken its toll on the discount retail powerhouse, whose shares have fallen 14.7 percent from their 52-week closing high of $61.05 on March 3, 2004. Wal-Mart closed Friday at $52.10.
Is Coke the real thing?
The Coca-Cola Co. has seen similar weakness in its share price. Coca-Cola has fallen 20 percent from its April 19 close of $53, finishing Friday at $42.76. The soft-drink company is expected to earn 40 cents per share, down from 46 per share a year ago, on revenues of $5.2 billion. The Dow component is expected to report its earnings Wednesday morning.
Federal Reserve Chairman Alan Greenspan goes before Congress this week to talk about monetary policy and the state of the U.S. economy. Greenspan is scheduled to testify before a Senate committee on Wednesday, followed by House committee testimony on Thursday. Wall Street is expected to watch closely, and stocks could prove volatile should Greenspan prove particularly bullish — or bearish.
Looking ahead, all U.S. markets will be closed on Monday, Feb. 21 in honor of the Presidents’ Day holiday.