A good week is on tap
If the stars align as analysts think, the week ahead should be a good one for Wall Street bulls.
By Alexandra Twin, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - February started with a whimper. But on Wall Street, it just might end with a bang.

Granted, analysts say, any potential "bang" next week would just be a bang within a broader trading range. But for investors who have struggled through a typically mucky month for the markets, a little reprieve near the end would be well-appreciated.


"I think we'll see an end-of-month advance next week," said David Briggs, head of equity trading at Federated Investors.

"Most of the quarterly earnings are out and nobody is forecasting an earnings recession, no one is calling for an economic recession," he said. "The market is gradually earning its multiple. There's no real reason to sell."

That sentiment certainly supported the stock market at the end of last week.

Oil back up

Oil prices rebounded on global supply threats amid unrest in Saudi Arabia and Nigeria. A number of Federal Reserve officials -- including new chairman Ben Bernanke -- indicated that while an end to interest rate hikes is near, it's not here yet. Retailers Gap (Research) and Wal-Mart (Research) Stores forecast that their earnings will slow in 2006.

Yet, despite all these potential negatives for stock prices, the Nasdaq and S&P 500 ended the week with gains and the Dow Jones industrial average closed not far from the 4-1/2 year highs hit earlier in the week.

The week ahead could be even better, with the stock market likely to be supported by this same resilience, as well as the tendency for the first few days of March to be upbeat, according to the Stock Trader's Almanac.

"Longer term I'm bearish, but I'm pretty optimistic for next week," said Ken Tower, chief market strategist at CyberTrader.

"People have been wondering how many more bumps there will be in the Fed funds rate, and I think we'll get some clarity on that," he said.

After 14 consecutive rate hikes since June of 2004, the Fed funds rate, a key short-term interest rate, currently stands at 4.5 percent. Analysts say that stock market participants seem to have accepted that another rate hike is on tap for the next Fed meeting, in March. Yet, there is confusion about what the central bank may do after that.

In addition, "we'll get more information next week to suggest a small slowdown in housing, but no steep decline," Tower added. "I think that will reassure traders and investors that the economy is still on an even keel, if not booming."

Looking to the consumer

In addition to housing, reports are due in the week ahead on manufacturing and construction, auto and truck sales, personal income and spending and consumer confidence. (See calendar).

The reads on how consumers are spending and how confident they feel will be of particular importance both next week and beyond, said Jim Melcher, president of Balestra Capital.

"We haven't really seen a slowdown in personal consumption figures yet, but that could happen," he said, noting that it would have a significant impact on the economy and stock prices.

While he's not expecting next week's numbers to reflect that, he says that is a general risk to the market in the short term. Lower consumer spending is particularly a risk as it ties into a broader confluence of events that could hurt stocks going forward.

"The consumer may be running out of power, homebuilding is slowing, oil prices are remaining high, and short-term interest rates are going up," Melcher said. "That's an awful lot coming together at the same time that could pressure stocks."

But that probably won't happen in the week ahead, he noted, with stocks likely to continue holding up, partly due to the increased liquidity in the market at the moment.

Here's what's on tap for next week:

Key events in the week ahead

  • January new home sales, due Monday, are expected to have fallen to a 1.26 million unit annualized rate, according to a consensus of economists surveyed by Briefing.com. Sales stood at a 1.269 million unit annualized rate in December.
  • The revised read on gross domestic product growth in the fourth quarter is due Tuesday. GDP is expected to have grown at a 1.5 percent rate versus an initial read of 1.1 percent. GDP grew at a 4.1 percent rate in the third quarter.
  • The Chicago PMI, a measure of manufacturing in the midwest region, is due Tuesday. The index is expected to have inched down to 58.2 in February from 58.5 in January.
  • Existing home sales for January, due Tuesday, are expected to have fallen to a 6.58 million unit annual rate, from a 6.60 million unit annual rate in December.
  • The February Consumer Confidence index, due Tuesday, is expected to have fallen to 105.0 in the month from 106.3 in the previous month.
  • Personal income, due Wednesday, is expected to have risen 0.6 percent in January, analysts expect, after gaining 0.4 percent in December. Personal spending is expected to have risen 0.9 percent in the month after rising 0.9 percent in December.
  • Construction spending is expected to have risen 1 percent in January, analysts forecast. Spending rose 1 percent in December.
  • The Institute for Supply Management's manufacturing index, due Wednesday, is expected to have risen to 55.1 in February from 54.8 in January.
  • The University of Michigan's revised reading on consumer sentiment, due Friday, is expected to be revised up to 87.5 from an earlier read of 87.4.
  • The Institute for Supply Management's services index, due Friday, is expected to have risen to 58.0 from 56.8 in the previous month.

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