NEW YORK (CNN/Money) - Like the lead character in the beloved children's book "The Little Engine That Could," U.S. stock investors have been trudging forward in the past few weeks, determined to push the equity recovery into motion, ahead of and perhaps despite the economic caboose.
But with so many false starts over the past 18 months, and with economic signals still mixed for consumer spending and inflation, investors are wondering, as we approach what could be a lackluster holiday shopping season, if this time the markets can really sustain the gains.
While analysts and economists insist that the ground is still very shaky, indexes last week did manage to touch a near-term milestone.
On Friday, the Dow Jones industrial average joined the Nasdaq composite and the Standard & Poor's 500 in returning to its pre-Sept. 11 levels.
U.S. markets ended in positive territory last week. The Nasdaq composite index finished the week at 1,828.48, an 82-point, or 4.7 percent, rise. The Standard & Poor's 500 closed up 33.08 points to 1,120.31, a three percent gain on the week. And the Dow Jones industrial average rose 283.91 points, or 3 percent, on the week, to close at 9,608.
"You've got a market of emotions, and I think the emotions show us that the markets want to rise," Peter Mancuso, NYSE specialist, Performance Specialist Group, told CNNfn's Street Sweep.
Global interest rate reductions, more than any specific stocks, marked the week's trading. The European Central Bank and the Bank of England both cut interest rates by half a percentage point to 3.25 percent.
Earlier in the week, the Federal Reserve cut interest rates by a half-percentage point, lowering the overnight bank lending rate to 2.0 percent from 2.5 percent, the tenth cut of the year and the third since the events of September 11.
"Friday's Dow movement shows that the market is in an uptrend. That's encouraging," said Donald Selkin, chief investment strategist, Joseph Gunnar. "The market is trying to anticipate a recovery before the economy."
"The political news is favorable, fiscal and monetary surplus is helping, interest rates are down, and tech stocks, rather than safe-play defensives are where investors are putting their money," he said.
However, Selkin echoes the same sense of caution of a number of analysts: Namely, that there have been plenty of near rallies in the recent past that have fallen through and that the current momentum may lose steam before - and perhaps throughout - the holiday season.
"The market could drift for a while here until we get to around Thanksgiving," John Chadwick, senior portfolio manager, Bessemer Trust Company, told CNNfn. "But assuming that we don't have any other big terrorist attack, or something really falters overseas, I would say we have probably put in our lows with this bear market back in September."
Among the many economic reports due this week, investors will be looking most closely at Wednesday's October retail sales data, expected to show a rise of 2.0 percent from a 2.4 percent decline in September.
The Commerce Department's retail sales, excluding the volatile automobile sector, is largely looked at as perhaps the most timely indicator of broad consumer spending trends.
On Thursday of last week, individual retailers' October sales reports showed consumers moving away from specialty stores and toward discount chains.
Inflation data paint mixed picture
Last Friday, the Labor Department said its Producer Price Index (PPI), a measure of inflation at the wholesale level, fell 1.6 percent last month after September's 0.4 percent gain, easily surpassing the 0.3 percent decline analyst were expecting. It was the biggest slide since the department started keeping track in 1947.
Robert Brusca, chief economist, Ecobest Consulting, told CNNfn that the number showed how weak the economy is. "Prices don't decline like this unless you've got a lot of slack demand conditions."
However, the report may be a good harbinger for the Consumer Price Index (CPI), due Friday, Brusca said, noting that the report seems to signal that "consumer prices are really going to be under control, as well."
The October CPI, one of the more closely watched inflation indicators, is expected to show a 0.1 percent decline, down from the 0.4 percent rise in September.
Retailers, computer hardware, among names due to report
Although the third-quarter earnings season is winding down, there are still a handful of companies expected to report quarterly results this week, including three Dow components and a number of retailers.
On Tuesday, retailer Home Depot (HD: Research, Estimates) is expected to earn 33 cents per share, a 17 percent increase from the 28 cents a share earned in the same period one year ago. Wal-Mart (WMT: Research, Estimates) is expected to earn 33 cents a share, a 6 percent rise from the 31 cents a share earned a year earlier.
Also Tuesday, retailer J.C. Penney (JCP: Research, Estimates) is expected to post per-share earnings of 13 cents, marking a solid turnaround from the 24-cents-a-share loss posted in the same period a year ago.
Data storage provider Network Appliance (NTAP: Research, Estimates) is due to report breakeven results Tuesday, a deterioration from the 10 cents per share earned one year ago.
On Wednesday, semiconductor equipment maker Applied Materials (AMAT: Research, Estimates) is expected to report earnings of 4 cents a share, showing a 94 percent decline from the 77 cents earned one year earlier.
On Thursday, computer hardware maker Dell (DELL: Research, Estimates) is expected to report earnings of 15 cents a share, a 40 percent decline from the 25 cents earned one year earlier.
Also on Thursday, computer hardware maker Hewlett-Packard (HWP: Research, Estimates) is expected to have earned 10 cents a share, a 75 percent pull back from the 41 cents earned one year ago.
Thursday also brings results from two retailers. Apparel retailer Gap (GPS: Research, Estimates) is expected to lose 5 cents a share, compared with the 21 cents earned one year ago. Specialty coffee retailer Starbucks is forecast to have earned 14 cents a share, a 27 percent rise from the 11 cents per share earned one year ago. 
|
