Wall Street looks to refuel rally

The advance has been losing steam, but the week ahead could give it fuel. Fed meeting on tap. Housing and consumer spending reports also due.

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NEW YORK (CNNMoney.com) -- After three months of rallying, the stock market seems to have hit the wall.

Bets that the recession is waning have turned to concerns that growth remains elusive, leaving stocks in wait-and-see-mode. But the week ahead brings a bevy of reports that could help get the market moving again.

Reports are due on housing, consumer spending, the labor market and durable goods orders. A Federal Reserve policy meeting is also on tap, although the bankers are not expected to change their target for short-term interest rates.

"The big rally since March correctly anticipated the change in the economic data from free fall to stabilization, but now it feels like the stock market is in a bit of a lull," said Bob Baur, chief global economist at Principal Global Investors.

He said that investors are pondering whether the consumer is going to be willing to step back in forcefully at a time when mortgage rates are starting to rise, gas and oil prices are advancing and unemployment is at a 26-year high of 9.4%.

"Investors are considering now whether consumers feel they need to keep raising their savings," Baur said. "If consumers sit out, that could delay any recovery."

Consumer spending fuels two-thirds of economic activity.

Last week all three major gauges ended lower, as investors eyed a mix of economic news, S&P's downgrade of 22 banks and President Obama's proposed overhaul of the financial regulatory system.

But the market was also retreating after the rally. Stocks, as measured by the S&P 500, spiked more than 40% between March 9 and June 12th. On that date in March, the S&P 500 and Dow both touched a 12-year low while the Nasdaq hit a more than 6 year low.

As of Friday's close, the S&P 500 was up 35% off the lows.

Federal Reserve meeting: The central bank meets this week to discuss interest rate policy. The two-day meeting ends Wednesday with a decision due at around 2:15 p.m. ET.

The bankers are expected to hold the fed funds rate steady at an historic low near zero, as they did at the April meeting, despite the recent run up in long-term interest rates.

The recent spike in the 10-year note yield has raised concerns for stock investors that the Fed may need to start raising short-term rates later this year, particularly after the 10-year hit a 7-month high of 4% earlier this month. But reports on consumer and wholesale inflation have showed pricing pressure remains tepid, even as oil and gas prices have been on the rise.

With little inflationary pressure, the Fed is unlikely to raise interest rates at this meeting, particularly as the economy remains in recession.

Of greater interest will be what the Fed says about the state of the economy and what it says about its ongoing program to buy back its own debt, known as quantitative easing.

Recent reports have added to the bets that the pace of the recession is slowing -- something the Fed said in the statement accompanying the April meeting. But worries have also surfaced in the last two weeks that the stock market has gotten too far ahead of itself and that a recovery may start later than Wall Street realizes.

Wall Street is also looking to see if the bankers hint at an upcoming expansion of the quantitative easing program, a $300 billion debt buy back program the Fed has enacted to try to keep a lid on spiking bond yields.

The U.S. government has been selling trillions in debt to fund its recovery efforts, driving up yields. While this can have positive implications, it also drives up mortgage rates, which could knock the wind out of any burgeoning housing market recovery.

To counter this, the Fed has been buying up its own debt.

On the docket

Tuesday: May existing home sales is due out before the start of trade from the Census Bureau. Sales are expected to have risen to a 4.83 million unit annual rate.

Tuesday also brings a report on mass layoffs from the Labor Department. Mass layoffs refers to the number of layoff announcements involving at least 50 workers.

Oracle reports earnings after the close. It's expected to have earned 44 cents per share after earnings 47 cents a year ago.

Wednesday: Durable goods orders are expected to have declined 0.9% in May after posting a surprise rise of 1.9% in the previous month. The Census Bureau report is also expected to show that orders excluding transportation fell 0.5% after rising 0.8% in the previous month.

The May new home sales report, also from the Census Bureau, is due out after the start of trading. Sales are expected to have risen to a 360,000 annual unit rate from a 352,000 unit annualized rate in April.

In Washington, the House Financial Services Committee holds a hearing on regulatory restructuring beginning at 10:00 a.m. ET.

The weekly crude oil supply report from the Energy Information Administration is also due in the morning.

The Federal Reserve decision is due at 2:15 p.m. ET.

Thursday: The weekly jobless claims report from the Labor Department is likely the big market mover of the day. Last week continuing claims dropped for the first time since the week ended Jan. 3. Continuing claims is a measure workers receiving benefits for a week or more.

Investors will also check out the revised reading on first-quarter GDP growth.

Federal Reserve Chairman Ben Bernanke will testify before a House of Representatives Committee regarding the Bank of America purchase of Merrill Lynch.

Friday: May personal income and spending reports are due in the morning from the Commerce Department. Income is expected to have risen 0.2% after rising 0.5% in April, while spending is expected to have risen 0.4% after falling 0.1% in April.

The PCE deflator, the report's inflation component, is likely to show that pricing pressures remain moderate. PCE is expected to have risen 0.2% after rising 0.3% in April.

The revised reading on consumer sentiment from the University of Michigan is also due, but it's not usually a market mover. To top of page

After three months of rallying, the stock market seems to have hit the wall. But the week ahead brings a bevy of reports that could help get the market moving again.
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