RPT-Wall St Week Ahead: Stocks still have room to extend rally Sun Jun 10,
2007
NEW YORK, June 10 (Reuters) - U.S. stocks could move higher this week
after a bond market rout led investors to wonder if the threat of inflation was
on the horizon or if the economy was actually stronger than expected, and good
for stocks. Major stock market gauges recovered on Friday after a bond
sell-off pushed the benchmark 10-year U.S. Treasury note's yield up to 5.25
percent -- matching the fed funds rate target at one point -- from levels below
5 percent a week earlier. That jump in government bond yields rattled investors
who, skittish about a bull market that has lasted longer than most, worry that
rising capital costs will cut corporate profits.
if(!CMSB_ID){var CMSB_ID=""}
CMSB_ID+="060807_MIDART_editorschoice,";document.write('');
Around midday on Friday, stocks began rallying as the 10-year note's yield
retreated to around 5.11 percent. Friday's recovery after last week's
three-day slide is a good indication of where the market is headed as investors
realized they overreacted to a spike in market interest rates, said David Joy,
market strategist at RiverSource Investments. "Interest rates are where they
should be, and we haven't had any inflation. This is a little adjustment to a
new level of rates, a level that the stock market doesn't have a problem with,"
Joy said. The blue-chip Dow Jones industrial average <.DJI> climbed 157.66
points, or 1.19 percent, to end Friday's session at 13,424.39. The broad
Standard & Poor's 500 index <.SPX> gained 16.95 points, or 1.14 percent, to
finish at 1,507.67. The Nasdaq Composite Index <.IXIC> advanced 32.16 points,
or 1.27 percent, to close at 2,573.54.
Falling oil prices on Friday also helped the major U.S. stock indexes
rebound. U.S. crude oil for July <CLN7> slid $2.17 to settle at $64.76 a barrel
on the New York Mercantile Exchange. That price was down 32 cents from June 1.
For the week, though, the effects of the stock market's pullback were visible:
The Dow average ended down 1.78 percent, the S&P 500 fell 1.87 percent and the
Nasdaq lost 1.54 percent. So far this year, the Dow is still up 7.71 percent,
while the S&P 500 is up 6.30 percent and the Nasdaq is up 6.55 percent. With
memories of the dot-com bust still fresh, many investors are cautious and
trying to identify an inflection point, Joy said. But stronger growth, absent
inflationary pressures, is good for stocks, he said.
The bond market has realized rates should be a little higher, given how
strong the economy is," he said.
Investors will look for any change in language about interest rates when the
Federal Reserve releases its Beige Book summary of regional economic conditions
on Wednesday. Joy said he did not expect to see the Fed change its
interest-rate stance. Since last June, the Fed has held its fed funds rate for
overnight bank loans steady at 5.25 percent. CPI ON THE BRAIN The headline
to watch for this week is inflation data that comes out on Friday, and possible
inflationary signs in an industrial output and capacity utilization report
later that day, Joy said.
Investors will be a little bit wary of Friday's inflation data, leading to
a drop in trading the day before, he said. But inflationary pressures are
unlikely to appear for another six months or more, he said. A Labor
Department report is expected to show that the overall U.S. Consumer Price
Index rose 0.6 percent in May after gaining 0.4 percent a month earlier.
Stripping out food and energy, the core CPI likely rose 0.2 percent in May, the
same as in April, according to economists polled by Reuters. U.S. industrial
production probably increased in May, up 0.2 percent after April's rise of 0.7
percent, according to the Reuters poll. Capacity utilization at factories
likely stayed the same at 81.6 percent in May. Friday's CPI data will be
preceded on Thursday by a look at prices at the wholesale level. The forecast
for the overall U.S. Producer Price Index calls for a gain of 0.6 percent in
May, following an increase of 0.4 percent in April, according to the
Reuters poll. Core PPI, excluding volatile food and energy prices, probably
rose 0.2 percent in May, in comparison with no change in April.
if(!CMSB_ID){var CMSB_ID=""}
CMSB_ID+="060807_MIDART_editorschoice,";document.write('');
Among other data expected on Friday will be a preliminary reading on U.S.
consumer sentiment in June from the Reuters/University of Michigan Surveys of
Consumers. The June consumer sentiment index is forecast at 88.0, down from
88.3 in May. Manufacturing activity in New York state, as seen by the New
York Fed's "Empire State" general business conditions index, likely rose to
10.8 in June from 8.03 in May. WHAT THE BANKERS SEE Investors will get a
taste of second-quarter earnings this week when chip maker Texas Instruments
(TXN.N: Quote, Profile , Research) provides a mid-quarter financial update on
Monday, and three of Wall Street's largest investment banks release results.
Lehman Brothers (LEH.N: Quote, Profile , Research) reports on Tuesday, while
Bear Stearns (BSC.N: Quote, Profile , Research) and Goldman Sachs (GS.N: Quote,
Profile , Research) report on Thursday. All three investment banks will release
their quarterly scorecards before the opening bell on
those respective days. "People will look to the brokerage comments about the
markets in general and their outlook for their own companies," said Mark
Bronzo, managing director at Gartmore Separate Accounts in Irvington, New York.
(Wall St Week Ahead runs weekly. Questions or comments on this column can be
e-mailed to: herbert.lash(at)reuters.com)
---------------------------------
Got a little couch potato?
Check out fun summer activities for kids.
