Inflation data likely to affect stock rally
Wall Street might have a tough time matching last week’s outstanding performance in the coming days, but inflation figures could be the impetus for extending the advance.
The Labor Department will release its consumer price index for January on Wednesday, giving the Federal Reserve one of its primary indicators to gauge the pace of inflation. As Wall Street knows quite well, a larger than-expected rise in inflation at the consumer level might nudge Fed policymakers toward raising interest rates to keep prices in line.
Remarks last week from Fed Chairman Ben S. Bernanke that economic growth and inflation were moderating sent stocks soaring last week, pushing the Dow Jones industrials to another series of record highs. Bernanke gave investors what they were hoping for: some assurance that rates were likely to remain stable -- as long as economic data support that trend.
But because there’s a continual stream of data for investors to parse, soothing words don’t tend to last too long in the stock market. So the consumer price index has the power to either send stocks climbing further this week or bring the market’s February rally to a halt.
As of Friday, analysts expected the consumer price index to show an increase of 0.1% in January, slower than December’s 0.4%. But they expected the core CPI -- which strips out volatile food and energy prices -- to register a rise of 0.2%, quicker than December’s 0.1%.
For more clues about where rates are headed, investors will pore over the Federal Open Market Committee’s minutes from its Jan. 31 meeting, which will be released Wednesday. The central bank’s policymakers decided to leave the benchmark interest rate steady at 5.25% for the fifth straight meeting.
Last week, the Dow rose 1.5%, the Standard & Poor’s 500 index rose 1.2% and the Nasdaq composite index rose 1.5%.
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The week ahead
Today
* Presidents Day. U.S. financial markets are closed.
Tuesday
* Treasury bill auction.
* Quarterly earnings reports due from Hewlett-Packard, Home Depot, Medtronic and Wal-Mart Stores.
Wednesday
* Labor Department reports on consumer price index for January.
* Conference Board reports its monthly leading economic indicators index.
* Earnings reports due from Abercrombie & Fitch, Medco Health Solutions, Taser International and Zale.
Thursday
* Labor Department reports on weekly jobless claims.
* Freddie Mac reports on mortgage rates.
* Quarterly earnings report from H&R; Block, Intuit, JCPenney, Safeway and TRW Automotive Holdings.
Friday
* Earnings reports due from Clear Channel Communications, Domino’s Pizza and Lowe’s.
