Wall St. bulls with a cross to bear
A deluge of economic data could give stocks the impetus to move higher this week.
February 24, 2002: 7:00 a.m. ET
By Staff Writer Parija Bhatnagar
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NEW YORK (CNN/Money) - A developing story is in the works for U.S. investors. Analysts say the state of the economy warrants its fair share of Wall Street's attention, and could surely get it this week. If that's true, it could -- perhaps -- flush out the insidious nervousness that's plaguing the market.
"The barrage of economic data will be the one saving grace for the markets this week," said Barry Hyman, chief investment strategist with Ehrenkrantz King Nussbaum. "The markets has got to make a statement, whether it wants to continue to concentrate on accounting and trust issues or the growth story for the economy in 2002.
"A lot hinges on the numbers. If they're good, the market rallies. If we get any suspicious numbers, or more accounting-related stories coming into the fray, we're looking at lower prices again. It's a time of caution and some confusion," Hyman added.
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Barry Hyman, chief investment strategist with Ehrenkrantz King Nussbaum. | |
The wild fluctuations in the markets last week mirrored that sentiment. Market pros watched Wall Street struggle for stability as new reports of alleged accounting shenanigans acted like lead weights, dragging lower the tainted stocks of names such as market icon IBM (JPM: Research, Estimates), financial heavyweight J.P. Morgan (JPM: Research, Estimates), and other household names like Cisco (CSCO: Research, Estimates) and Computer Associates (CA: Research, Estimates), along with the sectors they inhabit.
"There's a stench of burnt toast coming out of all these news reports," Donald Luskin, chief investment officer with Trend Macrolytics, told CNNfn's Market Call. "It's very, very thought contagious. And if it spreads across the techs and venture capital companies in Silicon Valley, it will make Enron look like small change."
Hyman said the lack of a short-term trend either way in the markets would make it a difficult trading environment for traders and individual investors. "This is a time to be very diversified and avoid taking chances. Sometimes being a spectator is not a bad idea," said Hyman.
For the week, the Dow Jones industrial average rose 0.6 percent, while the Nasdaq composite dropped 4.4 percent. The Standard & Poor's 500 lost 1.3 percent for the week.
"The Nasdaq broke its support levels last week because of IBM, Cisco, and Computer Associates. The S&P was weighed down by its tech exposure. Another key story next week is whether the Dow follows the rest of the market or can it continue to hold in the gains," Hyman said.
A smorgasboard of economic data
With January headline numbers continuing to show an uptick, economists appear to be aligning their opinions close to a consensus about an economic recovery that's under way.
Last week's leading economic numbers showed a fourth month of expansion, while the 2001 trade deficit contracted for the first time in six years.
The debate, it appears, has moved on to how strong the recovery will be, and its impact on corporate profitability.
"This week's collection of data will give the markets plenty to trade on," said Carol Stone, deputy chief economist with Nomura Securities. "If this week's data come in weaker than expected, that will be a major surprise. The data will also clear some of the ambivalence, not about whether the economy is in recovery but how vigorous it's expected to be.
It's a heavy bag of updates, beginning Tuesday with the Conference Board's read on consumer confidence for January. Economists surveyed by Briefing.com expect an increase to 98.5 from 97.3 in December.
On Wednesday, the Census Bureau reports on durable goods orders for January. Economists surveyed by Briefing.com forecast a 1 percent increase for the month, signaling a second month of expansion from a rise of 1.7 percent in December.
GDP for the fourth quarter is expected to be revised 1 percent higher when the Commerce Department reports preliminary data Thursday. Economists surveyed by Briefing.com expect an increase of 0.3 percent, up from 0.2 percent in the previous quarter.
"If the GDP gets revised downward, it's a negative for the markets. If it stays anywhere within the expected range, it gives credence to that the fourth quarter was some economic trough," said Hyman.
The Institute of Supply Management releases its survey on the manufacturing sector Friday. Economists surveyed by Briefing.com forecast a slight improvement to 50 for February from 49.9 in January.
"This would be an indication that activity is increasing at more than half the manufacturing firms in the survey, and another sign of growth," said Stone.
Meanwhile, in another sign of a bottoming out in manufacturing activity, the Federal Reserve of Philadelphia last week said data showed manufacturing activity in the highly-industrialized mid-Atlantic region expanded at its fastest rate in almost two years
Greenspan in the House
Added to the mix is a scheduled Greenspan sighting this week. The Federal Reserve Chairman is expected to deliver the Humphrey-Hawkins report on monetary policy before the House Financial Services Committee.
Economists say that the speech in unlikely to foreshadow any tightening by the central bank, but a message might be delivered that if the equity markets threaten to undermine a recovery, the Federal Reserve could still act.
"I think investors will pay attention to this appearance by the Fed chairman. He will outline the Federal Reserve's own workings. This will be interesting because many speakers from the Federal Reserves have recently discussed the fact that we are going to have a recovery, but it's going to be slow," said Stone.
"This obviously suggests that if they were going to tighten monetary policy and raise rates, it would be in a very gradual fashion."
The last of the lot
Investors will begin to collect the final trickle of the 2001 fourth-quarter reporting season this week. More than 94 percent of the S&P 500 companies delivered results by last week Friday. Another 15 companies, or about 3 percent, will step up to the plate this week.
For a second consecutive week, the nation's retailers will dominate the docket.
"I don't think investors should expect any surprises from retail results this week," said Karen Sack, retail analyst with Standard & Poor's. "The holiday season is over and everybody is looking forward. So what will be more interesting are any comments that might be made on conference calls as to the outlook for the rest of the year."
On Tuesday, Home Depot (HD: Research, Estimates), the last of the Dow components to close out the list, reports fourth-quarter earnings. The company is expected to post a profit of 28 cents a share from a profit of 20 cents a share in the year-earlier period.
Gap (GAP: Research, Estimates), the largest U.S. apparel chain, stung by the downgrade of its debt to "junk" status by Moody's and S&P earlier this month, posts results Wednesday. The company is expected to report a loss of 4 cents a share from a profit of 31 cents a share in the year-earlier quarter.
Thursday's lineup includes retailer Target (TGT: Research, Estimates), expected to post a profit of 72 cents a share, up from 61 cents a share a year ago, and upscale;
Upcoming events to flag on the calendar
Robertson Stephens hosts a four-day annual technology conference in San Francisco starting Monday.
Computer makers Gateway (GTW: Research, Estimates) and Hewlett-Packard (HWP: Research, Estimates), which is locked in a battle with the founding-family scion Walter Hewlett to acquire Compaq Computer (CPQ: Research, Estimates), both have analyst meetings scheduled for Wednesday. 
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