NEW YORK (CNN/Money) -
Boy, Wall Street sure is a tough crowd these days.
For months, investors have been looking for signs that the economy and earnings are growing well and that inflation is tame enough to keep the Federal Reserve from going crazy with interest-rate hikes.
Last week, they got more than a few of those signs.
On Thursday, business equipment maker IBM (IBM: Research, Estimates) posted better-than-expected earnings and said not to worry about future earnings either. Dell (DELL: Research, Estimates), the world's biggest personal computer maker, upped the ante with its own optimism Friday. Apple (AAPL: Research, Estimates) posted solid earnings on Wednesday. [For a list of the coming week's key events, click here.]
Meanwhile, Thursday and Friday brought reports of weaker-than-expected wholesale and consumer prices.
And Thursday's report of anemic factory output in June was immediately followed by two gangbuster reports about regional factory activity in July.
Not half bad, right?
Apparently Wall Street thought it was, registering its third straight losing week. The Nasdaq was punished with a 3.2 percent loss for the week, while the Dow fell 0.7 percent and the S&P 500 lost 1 percent.
"If there were really fundamental problems out there, the market would drop much more quickly," said Ken Tower, chief market strategist at CyberTrader, a unit of Charles Schwab (SCH: Research, Estimates). "Instead, it can't get out of its own way. It's pushing a big boulder up the hill, and then it slides back down at the end of the day. It's just unable to really get any momentum going."
The problem, Tower and other analysts believe, is uncertainty. It's hard to think of a more hackneyed Wall Street bon mot than "the market hates uncertainty," but there you have it: The market hates uncertainty.
Though the news was fairly good last week, it wasn't unabashedly so -- almost every bright, fluffy cloud had a dark lining:
- CPI and PPI were tame, but both showed continued acceleration by certain measures.
- New Dell CEO Kevin Rollins said overseas demand is growing faster than U.S. demand, leading to more offshore outsourcing.
- The University of Michigan's consumer confidence measure grew, but not by much.
- Economists shot holes all through the happy regional manufacturing reports.
- Oil prices quietly rose above the troubling $40-a-barrel mark again.
All of this, plus weaker retail sales and a job market that's apparently stopped improving, and Wall Street was left with the uncomfortable possibility that the economy could be slowing down.
And with a dearth of economic news on tap this week, it seems unlikely that much could happen that could push Wall Street in one direction or another.
Sure, there are a ton of earnings; this week represents the peak of second-quarter earnings season, with 173 S&P 500 companies reporting. But individual companies' earnings reports seem unlikely to unlock the mystery of the economy's direction. [For a rundown of the week's key earnings reports, click here.]
In the meantime, the argument will continue between the economic optimists, who believe the economy's June hiccup was just a summer cold and that things will soon pick up again, and the pessimists, who doubt economic growth can be sustained now that the effects of last year's tax cuts and mortgage refinancing boom have worn off.
"Investors are going to be surprised when we get a string of stronger economic stats," said Phil Roth, technical market analyst at Miller Tabak & Co., who believes continued strength in inflation-hedging industrial, energy and metals stocks is a sign that the economy will pick up again. "But we might have to get through earnings season before that happens."
Speak, Greenspan
The economy's chief oracle, Fed Chairman Alan Greenspan, is scheduled to appear before Congress on Tuesday and Wednesday to offer his biannual testimony on the economy and monetary policy.
Analysts widely expect him to repeat the same mantra he and other Fed officials have been intoning for several weeks: The economy is strong, but not too strong. Inflation is higher, but not too much higher. Interest rates will rise, but not too much.
"We do not expect Chairman Greenspan to break new ground in his monetary policy testimony," Goldman Sachs economists said in a note to clients on Friday.
Alas, the other thing Greenspan will not do is pull out a crystal ball and forecast the real direction for the economy, inflation and interest rates. Nor can he predict the winner of the U.S. presidential election, the chances of a major terrorist attack in the United States or the future course of oil prices.
Until Wall Street gets some hard news about such things, investors will remain a tough crowd.
Key events in the week ahead:
- Tuesday morning brings one of only two real pieces of economic news, when the Census Bureau reports on housing starts in June. Economists, on average, expect the annualized pace of new home construction to rise to 2 million units from 1.967 million in May, according to Briefing.com. Building permits, a leading indicator of home construction, are expected to fall to an annualized rate of 2 million, from 2.1 million in May.
- Also Tuesday morning, Philadelphia Fed President Anthony Santomero will speak in Philly about the outlook for the economy.
- Tuesday afternoon, Greenspan begins his testimony before the Senate Banking Committee. Then he fields questions. A good time will be had by all.
- Wednesday morning, Greenspan repeats his testimony before the House Financial Services Committee and will likely field even testier questions from these lawmakers than he got in the Senate. Still, at the end of the day, a good time will again be had by all.
- Wednesday afternoon, Fed Vice Chairman Roger Ferguson will talk to the Exchequer Club of Washington about jobless recoveries.
- Thursday morning, the Conference Board, a private research firm, will release its gauge of leading economic indicators for June. Since all of the LEI components are already known to the market, this report rarely moves trading. Economists, on average, expect the LEI to rise 0.3 percent after gaining 0.5 percent in July.
- Also Thursday morning, the Labor Department will release the number of new applicants for unemployment benefits in the week ending July 16. Claims rose to 349,000 the prior week.
- Friday morning, Chicago Fed President Michael Moskow will speak in Chicago about the economy and monetary policy.
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