NEW YORK (CNN/Money) -
The bulls had quite a party this week on Wall Street, ignoring some troublesome developments in the real world.
High oil prices? Pump up the volume! Factory slowdown? Time for a beer run!
Analysts hope Wall Streeters will have enough gas to keep the party going through a week that will consist mainly of waiting for news from Iraq and other global trouble spots, such as midtown New York.
That may be a tall order.
Last week, the Dow Jones industrial average posted its second straight weekly gain, surging 2.9 percent to return to the 10,000 mark for the first time since early August. The S&P 500 gained 3.1 percent for its second straight gain, and the Nasdaq jumped 4.6 percent.
All this was accomplished even as oil prices rose to nearly $50 a barrel and economic news was mixed. To be sure, there were some hopeful developments: consumer price inflation was weaker than expected, and oil dropped dramatically at the very end of the trading day on Friday. [For a list of the coming week's key events, click here.]
But stocks were rising even before those events took place, an encouraging sign to some analysts. A brutal sell-off in late July and early August, they suggested, may have finally been the dose of medicine Wall Street needed to snap out of its funk and move consistently higher.
"Maybe now there's enough fear out there to form a base to rally again," said Jack Ablin, chief investment officer at Harris Trust.
Ablin believes the economy and corporate earnings are strong enough that the market will perform better in the coming months than it has so far. He warned that oil prices could still play a spoiler role, but the jury is out about whether crude will keep bubbling from here.
Some analysts take heart in the fact that energy stocks have been lousy in recent weeks, a sign that most investors believe $50 is just too much to pay for a barrel of crude oil. Others point out that the problems that have driven oil prices higher -- strong demand, tight supplies and terrorism fears -- aren't going to disappear any time soon.
Wall Street will be watching this week to see which side of the argument is winning.
Of course, it will probably be a fairly empty Wall Street, as it has been for several weeks this summer. It likely will remain fairly empty through the Republican National Convention (RNC), being held in midtown Manhattan the last week of the month.
Light trading volume, in fact, makes many analysts suspicious about the recent rally.
"Current market action is unconvincing," John Bollinger, technical analyst and founder of Bollinger Capital Management, wrote in a note on Friday. "Volume is simply far too low for confidence."
Other analysts disagree, saying any gain is helpful.
"The market can begin to repair itself in this kind of environment," said Grace Fey, market strategist with Frontier Capital Management. "We're making a very nice bottom here, and assuming the fundamentals are what we think they are, we should have a better market going forward."
Certainly, getting through the Republican convention and the Olympics without a terrorist incident would be a major source of relief for Wall Street.
But that wouldn't be the end of the uncertainties; still looming on the horizon would be the November presidential election, more Fed interest-rate hikes and the ever-present threat of terror attacks.
"These concerns are going to keep us from going too high," said Michael Carty, principal and stock market strategist at New Millennium Advisors. "The general trend is up, but it won't make investors euphoric, at least until after the election."
Key events in the week ahead:
- Tuesday will bring the National Association of Realtors report on sales of pre-owned homes in July. Economists, on average, think sales fell to an annual pace of 6.78 million units from 6.95 million units in June, according to Briefing.com.
- Wednesday morning, the Commerce Department will report on orders for long-lasting goods manufactured in the United States in July. Economists, on average, expect orders to grow 0.8 percent, following a 0.9-percent gain in June.
- Later Wednesday morning, in a separate report, the Commerce Department will report on sales of new homes in July. Economists believe sales fell to an annualized rate of 1.28 million units from 1.33 million units in June.
- Wednesday afternoon, Atlanta Fed President Jack Guynn will speak about the economy at a conference in Atlanta.
- On Thursday morning, the Labor Department will report the number of new claims for unemployment benefits in the week ending Aug. 21. Claims fell in the previous week to 331,000.
- Later on Thursday, the Conference Board, a private research firm, will release its Help Wanted index, a measure of job advertising in several major newspapers, for the month of July. Economists expect the index to rise to 39 from 38 in June.
- Friday morning, the Commerce Department will release its revised reading of gross domestic product (GDP) growth, the broadest measure of the economy, in the second quarter. Economists expect the annualized GDP growth rate to be revised down to 2.7 percent from an initial reading of 3 percent.
- Later Friday morning, the University of Michigan will release its revised reading of consumer sentiment in August. Economists expect the index to be revised up to 94.5 from an initial reading of 94.
- Also Friday morning, Fed Chairman Alan Greenspan will speak about demographics at the Kansas City Fed's annual conference in Jackson Hole, Wyo.
|
