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Investors set for roller coaster ride
Week full of key economic reports likely to keep investors on edge, but Dow record still in sight.
By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Stocks may be in for another week of choppy trading but a new all-time record for the Dow remains in sight.

Stocks have been jumpy lately as investors have cheered strong corporate earnings and signs of steady economic growth while battling rising inflation worries.

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Take last week's market performance. The Dow was on track to break through its all-time high, but a spike in oil and gold prices, a weak dollar and rising Treasury yields derailed the rally. The Dow ended up losing 1.7 percent on the week.

"There's a lot of uncertainty over whether the Fed will pause or not. Everyone's on edge," said Hugh Johnson, chairman of asset management company Johnson Illington Advisors.

In addition to rate concerns investors have a full plate of worries. Gold prices have soared above $700 an ounce, oil is within a few dollars of its record high, the housing market is cooling and consumers, whose spending powers two-thirds of the economy, are showing signs of weariness.

But some analysts say the Dow is still within reach of its all-time record of 11,722.98, hit on Jan. 14, 2000, which was right before the tech bubble burst.

"The bull is almost 44 months old, and it can't rock and roll like it did when it was younger, but the market is still supported by positive demand ratio for stocks and a strong economy," said Alfred Goldman, chief market strategist at A.G. Edwards, adding that he expects the blue-chip index to break its record within the next couple of weeks.

Economic reports on tap

This week's economic calendar is chock full of key reports. (See chart for details.) Readings on core consumer prices and wholesale prices, which are widely watched inflation measures, are likely to generate plenty of attention.

While the core readings are expected to be fairly tame, top line prices are likely to rise sharply on higher gas and energy prices, which will raise concerns at the Fed, economists at Global Insight, a research firm, wrote in a report.

Central bank policymakers last week hiked the target for the Fed's key short-term interest rate for the 16th straight time, to 5 percent, and said further hikes would depend on incoming economic reports.

Another report market watchers will be scrutinizing is a report on home building activity, which could indicate whether the Fed has already gone too far with its rate hikes and if the economy is slowing too much as a result.

Much of the nation's economic growth has been tied to the housing boom, which has created jobs in construction as well as spurred purchases of big-ticket household items such as refrigerators and washing machines. Consumers borrowing against their rising home values have also helped fuel the economic recovery.

"The real question is has the Fed already raised interest rates too high? If the Fed makes a mistake (with rate hikes), the first place it shows up is in the performance of the (stock) market," Johnson said.

Earnings watch

Three Dow components - Home Depot (Research), Wal-Mart (Research) and Hewlett-Packard (Research) - are due to report earnings next week. Robust corporate earnings have helped power the bull run.

Investors will also take in a batch of results from retailers. Retail sales at U.S. chain stores came in weaker-than-expected last month, indicating that rising energy prices and interest rates may be starting to hit consumer spending.

On Friday, the University of Michigan's index of U.S. consumer sentiment fell to a seven-month low. While the leading indicator is only loosely correlated with consumer spending, which fuels two-thirds of the economy, it's a sign that things may not look so good ahead for consumers, Johnson said.

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Energy stocks lead earnings charge -- click here.

End to rate hikes could end rally -- click hereTop of page

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