Wall Street hesitates, awaits clearer economic picture
With Wall Street investors hesitant, fresh data in the coming week could help provide a clearer picture of whether the US economy is in recovery mode or an extended downward spiral.
Inconsistent reports in the past week contributed to volatility on the stock market, leaving the main indexes mixed.
The Dow Jones Industrial Average of 30 blue-chip shares fell 1.09 percent in the week to Friday, to end at 11,370.69, while the broad-market Standard & Poor's 500 index lost a modest 0.23 percent to 1,257.76.
The technology-laden Nasdaq composite meanwhile rose 1.22 percent for the week to 2,310.53.
The market saw choppy trade in recent sessions, lifted by lower crude oil prices and hints of an economic rebound, but falling back on indications that a recovery is faltering, as occurred after a disappointing report on existing home sales.
US existing home sales fell to a 10-year low in June, according to industry data that depressed market sentiment. But that was tempered by a more modest decline in new home sales of 0.6 percent that raised hopes for a "bottom" to the housing slump, and by solid gains in orders for durable manufactured goods.
In the coming week, the picture may become clearer with the first estimate of US gross domestic product (GDP) in the April-June quarter. Analysts expect a small acceleration to a 1.8 percent expansion pace, even though the figure may be boosted by one-time tax rebates that lift consumer spending.
Also on tap are monthly sales reports from automakers, which could show the willingness of consumers to spend, and data on US payrolls in July -- one of the best indicators of economic momentum -- expected to show a loss of 68,000 jobs.
"Market sentiment seems to change with a shift in the wind, and it doesn't look like the accompanying volatility will go away anytime soon," said Kevin Giddis, analyst at Morgan Keegan.
He said the market "continues to grapple with itself, trying to sort out whether the problems that have plagued the financial sector for much of the past year are closer to the beginning or closer to the end. It has to sort out whether inflation is a real problem or it isn't."
"Payrolls will draw attention as the market turns from earnings to economics, but we expect the July numbers to look like more of the same -- moderate job losses and an upward creep in the unemployment rate," Avery Shenfeld at CIBC World Markets said.
"Second-quarter GDP could have a 2.0 percent handle. That captures the one-off benefits from fiscal stimulus and a return to production from strike-affected auto plants, and needn't bode well for the third quarter."
A big comfort to many investors is a major housing relief bill expected to be signed soon by President George W. Bush, offering help to distressed homeowners facing foreclosure and supporting mortgage finance giants Fannie Mae and Freddie Mac.
"The economy is slowly responding to a series of shocks -- arguably the worst postwar housing recession, distressed financial markets and record-high energy prices," said Michelle Meyer at Lehman Brothers.
"Policymakers have responded aggressively to these shocks, preventing an outright drop in GDP, and we expect a further policy response should the shocks deepen."
Some strategists remain cautious, arguing that the surprise rally in financial shares does not mean the woes are over for the sector.
"Is the short-term bounce over? We think it's close," said Doug Sandler at Riverfront Investment Group.
"Fundamentally, we don't believe financials can bottom until the drop in home prices slows ... We would feel better if banks were entering this potential recession with a significant 'rainy day' fund already built up. Unfortunately, that is not the case."
Bonds fell on the week. The yield on the 10-year Treasury bond edged up to 4.111 percent from 4.081 percent a week earlier and that on the 30-year bond rose to 4.696 percent from 4.662 percent. Bond yields and prices move in opposite directions.
In addition to economic reports, the market will see earnings reports from key firms including General Motors, ExxonMobil and Chevron that will show how well the various corporate sectors are weathering the economic storm.