Stock investors will watch housing starts, Consumer Price Index (CPI) and other data next week for signs that hopes for economic recovery will not turn out to be false.
If recent weeks’ activity is any indication, stocks may stay in a narrow trading range, as recovery hopes have been met with concern about an uncertain job market, rising gasoline prices and higher borrowing costs.
The three major US stock indexes ended just slightly higher for the week, even though the Dow Jones industrial average broke into positive territory for the year for the first time since early January.
“We’ve been in a slow, upward drifting trading range,” said Fred Dickson, market strategist at D.A. Davidson & Co in Lake Oswego, Oregon. “Investors are going to be looking to see ... if the green shoots in the economy have sprouted a little bit further or are languishing, waiting for some more water.”
The benchmark S&P 500 is up 39.86 percent since the 12-year closing low of March 9, and investors have been eager for more definitive signs that the recovery is going to be strong enough to sustain a rebound in corporate profits, which would probably underpin stronger gains in the market.
Besides data on construction of new housing, which has been among the weakest parts of the economy, investors will scrutinize readings on inflation at the wholesale and consumer level, when the Producer Price Index (PPI) and the CPI for last month are released in the coming week. Wall Street also will note the numbers on industrial production and capacity utilization as well as weekly initial jobless claims.
With oil prices back above US$70 a barrel, inflation worries could hinder the Federal Reserve’s efforts to end the recession, pushing up interest rates and delaying any recovery.
On Friday, the Dow Jones industrial average gained 28.34 points, or 0.32 percent, to 8,799.26. The Standard & Poor’s 500 Index gained 1.32 points, or 0.14 percent, to 946.21. The NASDAQ Composite Index dropped 3.57 points, or 0.19 percent, to 1,858.80.
For the week, the Dow advanced 0.4 percent, the S&P 500 added 0.7 percent and the NASDAQ rose 0.5 percent.
For the year, the blue-chip Dow average is up 0.26 percent.
Concern about higher borrowing costs for businesses and consumers mounted this week as the benchmark 10-year US Treasury note’s yield briefly touched 4 percent after Wednesday’s auction of 10-year notes.
“We may be putting in a high point, if not a top, in this run in yields,” said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco. “The bigger picture is that things are turning the corner slowly.”
Making the week’s outlook even more complicated is the scheduled quarterly expiration of four different types of June equity futures and options contracts.
The event, analysts said, could create greater volume and volatility as investors close out their positions.
“It’s a pretty busy week in terms of economic data as we come into the expiration. I’d expect to see a tremendous pickup in volatility,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
With added volatility, the market could break out of its recent trading range, he said.
“The question is: ‘Can we get through the options expiration and hold onto these gains and maybe move a little higher?’” Mendelsohn said. “I think prices have gone too high.”
Resource and technology shares have led gains in the market’s recent rise, and while the run up in oil prices has sparked some concern about inflation, it has given the energy sector a big lift.
Investors will get a clearer picture of inflation with producer price data on Tuesday, followed by consumer price data on Wednesday.
Housing starts are also expected on Tuesday, along with industrial production figures.
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