Economic Reports Could Drive Stock Market
Stock investors will probably take their cues from the bond market’s moves this week as Wall Street emerges from North America’s biggest blackout and drifts into the doldrums of summer.
Rapidly rising interest rates, fueled by expectations of an economic rebound, have fanned fears that higher borrowing costs could hinder the still fragile economic recovery.
That means good economic news could potentially be bad news for stocks this week as investors brace for a fresh batch of reports on the housing sector, consumer sentiment and the labor market.
“In the absence of earnings numbers that we can get our teeth into, the focus is going to be on the economy and the response of interest rates to economic numbers,” said Hugh Johnson, chief investment officer at First Albany Corp.
With many investors taking days off for summer vacations, trading volumes have dried up, leaving stocks to wander aimlessly in the tight range they have been stuck in for about two months.
“Let’s not forget this is the summer,” Johnson said. “The kind of trendless and volatile tone we’ve seen for the last few days, almost directionless, is likely to prevail.”
Earnings reports from retailers such as Toys R Us, Lowe’s Cos. and Gap Inc., as well as blue-chip names such as Hewlett-Packard Co. and Home Depot Inc. could catch investors’ attention in the week ahead.
But the flood of earnings reports has largely slowed to a trickle.
Stock investors are now primarily focused on finding out whether the long-awaited recovery in the economy and corporate profits is actually underway.
For that reason, the University of Michigan’s gauge of consumer sentiment, which was postponed Friday because of the power outages that darkened much of the Northeast and parts of Canada, will probably show up on investors’ radar screens.
Consumer spending drives about two-thirds of U.S. economic growth. Investors worry that the rebound could falter if Americans decide to snap their wallets shut.
Economists in a Reuters survey expect the preliminary Michigan report for August to show consumer sentiment nudged up to 91 from 90.9 in July.
Data on the housing sector also will be key, since it has been an area of strength in an otherwise sluggish economy.
Demand for mortgage loans has already cooled with yields on long-dated Treasuries, which dictate mortgage rates, up sharply. The benchmark 10-year Treasury note yield ended the week near 4.53% after hitting a one-year high on Thursday, pre-blackout, near 4.67%.
On Tuesday, the government is expected to report that housing starts slipped to an annualized pace of about 1.79 million in July from 1.80 million in June, according to economists polled by Reuters.
“All eyes are going to be focused on the economic data and its impact on the bond market,” said Rich Nash, chief market strategist at Victory Capital Management.
Here is a snapshot of the major business events and economic events scheduled for the coming week.
Today:
* Home improvement retailers Lowe’s Cos. and Home Depot Inc. and Toys R Us, the nation’s No. 2 toy retailer, report quarterly financial results.
Tuesday:
* Commerce Department reports on housing starts for July.
* Retailer Staples Inc. reports quarterly financial results.
Wednesday:
* Treasury Department reports on the federal budget for July.
Thursday:
* Labor Department reports on weekly jobless claims.
* Freddie Mac, the mortgage company, reports on mortgage rates.
* Conference Board reports on leading economic indicators.
* Retailers Gap Inc., Nordstrom Inc. and Limited Brands Inc. report quarterly financial results.
