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Are stocks at a turn point?

The Associated Press

After last week’s dreary economic news, Wall Street is more certain than ever that it is facing a recession. But it’s also seeing signs that corporate America is enduring the difficulties better than it anticipated.

With the Federal Reserve’s interest rate meeting this week and second-quarter earnings still pouring in, investors are trying to decide whether the stock market is at a turning point or just another plateau before the next big sell-off.

The market was volatile last week. Investors were relieved to see some decent earnings, as well as moves by Ambac Financial Group Inc. and Merrill Lynch & Co. to rid their balance sheets of risky debt. But they were disappointed about sluggish gross domestic product growth in the second quarter and a rise in unemployment to 5.7% last month.

The Dow Jones industrial average, after logging several triple-digit, back-and-forth swings, finished the week down 0.4%. The Standard & Poor’s 500 index ended up 0.2% and the Nasdaq composite index finished essentially flat.

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The Fed meets Tuesday, and policymakers are expected to keep its key interest rate steady at 2%. Inflation rose sharply for businesses in June as they paid higher prices for commodities, but it appears to have eased in July as the price of oil retreated in the second half of the month.

“A glimmer of hope is that we’ve moderated some of those input costs,” said Michael Strauss, chief economist at Commonfund.

Still, few market participants expect the Fed to get too complacent about inflation; there is no guarantee that commodity costs will keep going down.

“I think every Fed official would be likely to conclude that inflation pressures would be in danger of rebounding if the economy started to come back,” said Stuart Schweitzer, global markets strategist at JPMorgan Private Bank.

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The job market will also influence credit trends for consumers, not to mention their spending levels. Last week, the Labor Department said unemployment claims in the prior week soared to a five-year high -- so this Thursday’s weekly jobless claims figure will be of interest to Wall Street.

Other economic data this week include the Commerce Department’s report on personal income and spending for June; the Institute for Supply Management’s July index of service sector activity; the National Assn. of Realtors’ pending home sales report for June and the Labor Department’s second-quarter reading on worker productivity.

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At a glance

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Today

The Commerce Department reports on personal income for July and factory orders for June.

Quarterly earnings reports due from Anadarko Petroleum and Humana.

Tuesday

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The Federal Reserve announces the results of an auction aimed at reducing strains of the credit crisis and holds a one-day meeting to discuss the economy and interest rate policy.

The Institute for Supply Management releases its non-manufacturing index.

Quarterly earnings reports due from Cisco Systems, Procter & Gamble, News Corp., Marvel Entertainment, MGM Mirage, Archer Daniels Midland, Molson Coors Brewing, Tenet Healthcare, Wendy’s International and Whole Foods.

Wednesday

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Quarterly earnings reports due from Time Warner, Freddie Mac, Sprint Nextel, Qwest Communications, Marsh & McLennan and American International.

Thursday

Labor Department releases initial claims for jobless benefits.

Federal Reserve releases consumer credit data for June and announces results of borrowing by banks and financial firms from its discount window.

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Quarterly earnings reports due from DirecTV Group, Blockbuster, Sara Lee and Dynegy.

Friday

Labor Department releases productivity report for second quarter.

Quarterly earnings reports due from MBIA and Beazer Homes USA.

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Source: Times staff and wire reports


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