Wall St. looks to consumers

Wall Street goes into the new week in an upbeat mood, with investors growing more confident that the economy and the financial markets are heading toward a second-half recovery.

There’s been a steady stream lately of decent earnings reports and mostly benign economic data, and there’s a sense that the credit crisis that pummeled stocks since last fall is nearing an end. For the first time in weeks, there’s optimism that the government might have actually staved off a deep recession.

The U.S. consumer clearly isn’t that cheerful, judging from consumer confidence figures released last week, but traders and portfolio managers on Wall Street often get ahead of themselves, looking past any bad news and toward future profits.

Analysts are a little more cautious.

“The market has cleared its hurdles, but the race isn’t over yet -- we haven’t crossed the finish line,” said Chris Johnson, president of Johnson Research Group. “You’ll now start to see lots of money that will be migrating sector to sector because everyone has been waiting for this momentum.”

Johnson has a very bullish stance on stocks in the near term, calling for as much as a 10% rise within the next four to six weeks. But he’s also realistic: “Markets have a tendency to be overbought really quickly.” That was one reason the Dow Jones industrial average pared some of its gains Friday, closing 48 points higher after being up more than 100 earlier in the day and shooting up 190 in the previous session.

The Dow gained 1.3% over the course of the week, the Standard & Poor’s 500 index ended up 1.2% and the Nasdaq composite index rose 2.2%.

Johnson points out there are still some big obstacles that could stand in the way of the market extending its gains. Chief among them is the financial health of the consumer, whose spending habits account for more than two-thirds of the U.S. economy.

That means economic data and upcoming quarterly earnings from retailers will take on greater significance than usual. For example, investors are likely to focus on Walt Disney Co.’s earnings report Tuesday to determine the strength of sales at its U.S. amusement parks and of Disney products.

But they’ll also be looking at results from Cisco Systems Inc., which makes Internet routers and other wireless devices, when it posts results Tuesday. And they’ll be looking for comments Tuesday from global bank UBS on the state of the credit markets. Fannie Mae, the government-sponsored mortgage finance company, might give some perspective on the housing market.

The market will also get more economic data. If the numbers are good, the Federal Reserve is more likely to pause in its campaign of lowering rates -- a move that would enable the central bank to combat inflation and boost the anemic dollar.

“We’re slow-growth, but not imploding,” said Steven Goldman, chief market strategist at Weeden & Co.

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At a glance

Today

Treasury bill auction.

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

Quarterly earnings reports expected from McKesson, Anadarko Petroleum and Pilgrim’s Pride.

Tuesday

Quarterly earnings reports expected from Walt Disney, Cisco Systems, MGM Mirage, D.R. Horton, Fannie Mae, Molson Coors Brewing, NYSE Euronext, Qwest Communications International, Sara Lee and Tenet Healthcare.

Wednesday

Labor Department reports on productivity and costs for the first quarter.

Federal Reserve reports

consumer credit data for March.

Quarterly earnings reports due from DirecTV Group, News Corp., NCR and Marsh & McLennan.

Thursday

Labor Department reports on weekly unemployment benefit claims.

Freddie Mac reports on mortgage rates.

Quarterly earnings reports due from American International Group, Cablevision Systems, Warner Music Group, Assured Guaranty and Dynegy.

Friday

Commerce Department reports on international trade for March.

Quarterly earnings reports due from Clear Channel Communications and Liberty Media.

Source: The Associated Press