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A test of faith on Wall St.
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December 9, 2001: 7:00 a.m. ET
U.S. investors need more convincing to break a pattern of uncertainty.
By Staff Writer Parija Bhatnagar
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NEW YORK (CNN/Money) - U.S. investor confidence, an indecisive stop-go rally, and the fundamentals underlying an economic recovery are under scrutiny again this week as Wall Street compares and contrasts a mix of company reports and more economic feedback.
Market watchers say there is enough "unprecedented stimulus" - in lower oil prices, lower interest rates, and an economic security package in the making - to at least infuse positive momentum into the markets in the short term.
"We've got a big swing in fiscal policy, and a huge monetary stimulus, something we haven't had in a long time," Robert Morris, director of equity at Lord Abbett & Co., told CNNfn's Street Sweep.
"Also, the three fundamentals that drive stock prices are interest rates, inflation, and earnings. We're missing earnings right now, but with an improving economy in the first half, we could see earnings come back and higher stock prices," Morris said.
Investor euphoria over a batch of bullish mid-quarter updates last week, from technology titans Oracle, Intel (INTC: down $0.92 to $33.24, Research, Estimates) and Cisco, signaling possible strength in an economic recovery, sent the major indexes cruising through a milestone-hitting session.
But a surprisingly bad unemployment report on Friday put the bulls securely pack in their pen Friday, as blue chips and tech issues closed the session lower.
The data also increased the odds of another 25-basis-point interest-rate cut when the Federal Reserve policy makers meet on Tuesday. The central bank has cut rates 11 times this year in repeated attempts to prop up consumer spending.
On Friday, the Labor Department reported the unemployment rate soared to 5.7 percent in November -- the highest in six years -- as employers cut hundreds of thousands more jobs.
Wall Street pros said that number justifies the need for investors to heed caution and not jump on the back of stocks based on speculation versus fundamentals.
"I think the market senses something good going on. On the one hand, the feeling is that the economy is starting to show signs of improvement. But there are plenty of skeptics around who say that feeling may be a little premature, and they are selling on strength," said Alan Ackerman, market strategist with Fahnestock & Co.
"I think gains in the market have outrun fundamentals. The move has been too much too soon. I see the likelihood of a pullback next week," Ackerman added.
In wishy-washy trading last week, stocks and investor sentiment peaked and troughed in tandem with bullish corporate forecasts and more sobering November retail sales reports amid worrisome developments in the Middle East.
At the finish line Friday, the mid-week exuberance on Wall Street wilted, with the Dow Jones industrial average ending down 49.68, or 0.5 percent, at 10,049. 46, while the tech-heavy Nasdaq composite lost 33.01, or 1.6 percent, to 2,021.26. In the broader market, the Standard & Poor's 500 index shed 8.79, or 0.76 percent, to 1,158.31.
But for the week, the Dow gained almost 198 points, or 2 percent. The Nasdaq composite gained 90 points, or 4.7 percent, on the week overall, while the Standard & Poor's 500 closed the week up almost 18 points, or 1.65 percent.
"The markets took a rest Friday after a pretty busy week," Peter Mancuso, performance specialist with the New York Stock Exchange, told CNNfn's Market Call. "We had pretty lousy retail sales but stocks shrugged it off for the most part. The market has factored in another rate cut next week. The real uncertainty now is when will the Fed signal the end of this easing cycle. We think that could be around the corner," said Mancuso.
A check on retail sales
In this week's economic snapshot, on Thursday, investors get another gauge on consumer spending when the Census Bureau releases its update on retail sales for November. Economists surveyed by Briefing.com expect a decline of 2.8 percent, which will compare with a 7.1 percent rise in October.
Also due out Thursday is an update on retail sales excluding the recently volatile automobile sales. Economists surveyed by Briefing.com expect a smaller rise of 0.2 percent in November, compared with a rise of 1 percent in October.
Click here to check on CNNMoney's economic calendar.
In other economic news, on Friday investors get a read on industrial production data released by the Federal Reserve. Economists surveyed by Briefing.com forecast a drop of 0.5 percent for November from a decline of 1.2 percent in October. Industrial production has experienced a steady decline, with the manufacturing sector the hardest hit by the economic slowdown. The drop in October marked the 13th straight fall and the biggest contraction since a 1.3 percent drop in November 1990.
An appendage to this week's reports is the Labor Department's Consumer Price Index (CPI) figure - the government's main inflation gauge -- for November. Economists surveyed by Briefing.com expect a drop of 0.1 percent. The index dropped 0.3 percent in October.
More technology report cards on the way
Technology names dominate the docket for this week's earnings reports, including Comverse Technology, Ciena, and Oracle.
On Tuesday, telecommunications equipment maker Comverse Technology (CMVT: down $0.94 to $23.30, Research, Estimates) is scheduled to report third-quarter earnings of 11 cents a share, down 27 cents from 38 cents a share in the year-earlier quarter.
Before the bell Thursday, optical networking equipment maker Ciena (CIEN: down $0.98 to $18.58, Research, Estimates) is expected to post a profit of 5 cents a share, down 64 percent from 26 cents a share a year ago, according to analysts surveyed by earnings tracker First Call. Networking stocks got a boost last week after sector heavyweight Cisco's (CSCO: down $0.63 to $21.16, Research, Estimates) CEO, John Chambers, said orders in November hit their target.
Oracle (ORCL: up $0.01 to $15.91, Research, Estimates) is on tap to report second-quarter earnings after the bell Thursday 1 cent to 2 cents lower than the 11-cent profit it posted a year earlier.
More positive news for the technology sector came from Oracle's CEO, Larry Ellison, who said at the company's annual technology conference Wednesday that the No. 2 software maker's business had stabilized and could see growth in 2002. 
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