NEW YORK (CNN/Money) -
On Sunday, President Bush and his brother, Gov. Jeb Bush, trekked through southwest Florida, pointing at piles of debris, assessing the damage wrought by Hurricane Charley.
(See the story, "Bush visits Florida.")
Traders on Wall Street will be doing much the same thing this week, only they've got more than one storm wreaking havoc on them, and those storms may not lose strength any time soon.
By the close of trading on Friday, Charley, a hard-core, Category 4 hurricane, was perched off the coast of Florida, about to do some billions of dollars in damage and become perhaps the second-most destructive storm on record. (For a list of the coming week's somewhat less-destructive key events, click here.)
On Wall Street, meanwhile, trading was less turbulent, but not much more constructive, with major stock indexes closing flat, after losing ground in five weeks out of the previous six.
The Dow Jones industrial average gained 0.1 percent, the Nasdaq fell 1.1 percent and the S&P 500 gained just under 0.1 percent.
Stocks have been buffeted (no Florida Keys/Jimmy Buffett pun intended) for weeks by a host of uncertainties, including:
- the future growth rate of the economy
- the future growth rate of corporate earnings
- the eventual peak level of oil prices
- the economic damage being wrought by said oil prices
- the economic damage being wrought by two Federal Reserve interest-rate hikes
- the threat of terrorism associated with the Olympics, the Republican National Convention, the election and ongoing violence in Iraq
- the damage being done by all of the above to President Bush's re-election chances
To name a few. Now, on page one of your Market Cliches handbook, you'll find that "markets hate uncertainty," and traders will look this week to get a little more clarity about all of the above.
"The ongoing issues are the strength of the economy and whether or not the pace of the recovery is in fact slowing down," said John Davidson, CEO of PartnerRe Asset Management. "One of the important things this week will be to see the extent of the damage."
Unfortunately, the week is a little thin on timely economic data. Most critical will be Wednesday's report from the Bureau of Labor Statistics about what happened to its consumer price index (CPI) in July.
A serious gain in CPI could convince the market and consumers that inflation is gathering steam -- which, if true, would mean the Fed might have to keep raising rates, regardless of the economic pain -- while a benign CPI reading could be of some relief.
But perhaps the most interesting economic numbers will come every day, from the New York Mercantile Exchange, where crude oil prices have set new records almost every day in the past two weeks. They crossed $46 per barrel last week and could touch $50 before it's all over, according to some analysts.
Of course, $46 oil, adjusted for inflation, isn't nearly as expensive as it was in, say, the late '70s and early '80s, when the Iranian revolution and subsequent Iran/Iraq war drove oil to $80, adjusted for inflation. The economy is far less dependent on oil than it has been in the past, and gasoline prices have actually been falling, thanks to the end of the summer driving season.
Still, everybody on Wall Street is well aware that every recession in the past 30 years or so has been accompanied by an oil-price spike, and it's clearly making people nervous.
"Foremost on investors' minds is the elevated price of oil," Sam Stovall, chief investment strategist at Standard & Poor's, wrote in a note on Friday. "It appears to us that the $40 per barrel level represents a 'line in the sand' above which the equity market retreats and below which the market breathes a sigh of relief."
Oil prices could get some relief this week. On Sunday, Venezuelans will go to the polls to decide the fate of their president, Hugo Chavez. The outcome of that referendum could help stabilize the country, the world's No. 5 oil exporter. A battle between U.S. troops and Iraqi insurgents on Shi'ite holy ground in Najaf may be avoided, possibly keeping saboteurs from attacking Iraqi oil facilities, as some have threatened.
But the oil market will still have problems, and many analysts believe high prices are here to stay. And oil is only one brick in the market's wall of worry; even if crude prices recede, there will always be something else to worry about, including the possibility that oil is not to blame for the economy's woes at all -- that the "soft patch" was really the first stage of a longer-lasting downturn.
"There is a more plausible explanation for the spending slowdown, namely the withdrawal of fiscal and monetary stimulus from a household sector whose finances remain stretched," Goldman Sachs economist Jan Hatzius wrote in a note to clients on Friday.
Because of such worries, the Standard & Poor's investment committee last week recommended investors trim the percentage of stocks in their portfolios and cut its year-end target for the S&P 500 to 1,130 -- representing a paltry gain this year of less than 2 percent.
If that sounds bearish to you, there are many technical analysts who think it's not bearish enough. Technical analysts like to see traders panicking, heading for the hills, on the assumption that most people don't know what they're doing; when everything looks bleak and stock prices are at rock bottom, that's usually a great time to move in and pick up some bargains.
"People been extremely complacent," said Phil Roth, technical analyst at Miller Tabak & Co. "In the past week, there's been a change in some of our very sensitive indicators ... showing some trader pessimism."
"But we're a long way from a thoroughly oversold condition."
Key events in the week ahead:
- On Monday, the New York Fed will release its monthly index of August factory activity in the Empire State. Economists, on average, expect the gauge to fall to 32.3 from 36.5 in July, according to Briefing.com.
- Tuesday morning brings the aforementioned CPI report. Economists expect CPI to rise 0.1 percent, compared with 0.3 percent in June. Core CPI, which strips out food and energy costs -- don't you wish you could do that! -- is expected to rise 0.2 percent, compared with 0.1 percent in June.
- Separately on Tuesday morning, the Commerce Department will report on new home construction in July. Housing starts are expected to rise to a 1.89-million-unit annual pace from a 1.8-million unit pace in June.
- Later Tuesday morning, the Fed will report on industrial production and factory capacity use in July. Economists expect production to rise 0.5 percent after falling 0.3 percent in June, and they expect capacity utilization to rise to 77.5 percent from 77.2 percent.
- On Thursday morning, the Labor Department will report on the number of new claims for unemployment benefits in the week ending Aug. 14 -- which happens to be the week in which the BLS takes its surveys for the August employment report. Jobless claims fell to 333,000 in the week ending Aug. 7.
- Later Thursday morning, the Conference Board, a private research group, releases its index of leading economic indicators in July. The LEI is expected to be flat after falling 0.2 percent in June.
- Thursday at noon, the Philadelphia Fed releases its index of factory activity in Pennsylvania, New Jersey and Delaware in August. That gauge is expected to fall to 30 from 36.1 in July.
|
