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Wall Street uncertainty outweighs good news

Earnings data and two reports from the Commerce Department may have added importance this week, in a time of slower economic growth, higher oil prices and a market populated with skittish investors.
/ Source: The Associated Press

These days, there’s no such thing as good news on Wall Street.

The Federal Reserve on Tuesday said economic growth could be sustained, and that inflationary pressures were, for now, well contained. And on Friday, the Labor Department reported a strong rise in job creation, giving workers enough money to help fuel our consumption-driven economy.

On both days, the markets staggered to a narrowly mixed finish.

While Wall Street did end the week higher, the markets showed no signs of being poised to make a sustained move upward. Just look at Thursday’s downgrade of Ford Motor Co. and General Motors Corp. bonds to “junk” status. The Dow dropped 50 points literally within minutes.

Delicate balance
Investors’ fickleness reflects the delicate balance of forces in the economy. Economic growth has slowed down, which would normally cause the Fed to ease off on interest rates. But higher oil prices and, now, stronger job growth would require the Fed to raise rates to combat inflation.

So the Fed needs a policy that would promote economic growth while keeping inflation in check — a job that would seem to require not only vast knowledge of macroeconomics but also a housecat’s sense of balance. Wall Street will need to see a string of consistent economic data — and no surprises — for a few months before investors are reassured that Fed Chairman Alan Greenspan still has his deft touch.

Last week, stocks advanced solidly, but nagging worries about inflation kept the gains from resulting in the breakout investors hoped for. For the week, the Dow Jones industrial average gained 1.5 percent, the Standard & Poor’s 500 index rose 1.25 percent and the Nasdaq composite index climbed 2.38 percent.

2 critical Commerce Dept. reports
Concerns about economic growth and inflation will give Thursday’s retail sales report from the Commerce Department added importance. Economists expect sales to rise 0.7 percent in April, up from March’s 0.3 percent gains. With auto sales removed from the equation, sales were expected to rise 0.5 percent versus a 0.1 percent rise in March. Stronger sales would spur concerns about inflation, while weak sales would revive fears of an economic slowdown.

On Wednesday, the Commerce Department will report on the nation’s trade deficit, which is expected to fall to $60 billion in April from a $61.5 billion deficit in March.

The bulk of first-quarter earnings season has passed, with few surprises, but a handful of well-known companies report their results this week.

Whether it’s concerns about economic growth or inflation, Wal-Mart Stores Inc. suffers either way as consumers struggle with higher oil and gas prices. The stock has fallen 15.4 percent from its 52-week high of $57.89 on Nov. 15, finishing Friday at $48.96. The company, which reports earnings after Thursday’s session, was expected to earn 56 cents per share, up from 50 cents in the first quarter of 2004.

Cisco, Disney face scrutiny
The markets will look closely at networking equipment maker Cisco Systems Inc, expected to post earnings of 22 cents per share, up from 19 cents per share a year ago, when it delivers its report Tuesday afternoon.

Cisco, considered a barometer for the technology sector as a whole, has been at the mercy of corporate spending, which has yet to pick up significantly. The stock is down 25.5 percent from its 52-week high of $24.20 on June 24, 2004, but has been relatively steady for much of 2005 and closed Friday at $18.02.

On Wednesday, the Walt Disney Co. will attempt to extend its string of strong quarters. The stock has risen steadily since falling to its 52-week low of $20.88 on Aug. 13. The stock is up 28.8 percent, closing Friday at $26.89, and strong earnings have fueled much of the gains. Disney is expected to earn 31 cents per share for the quarter, up from 26 cents per share last year.