Investors return, ready for earnings

FE Team | Published: July 10, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

NEW YORK, July 9 (AP): Investors will get a few snapshots of the economy's health this week when they return from their Fourth of July vacations and prepare for earnings season.
Wall Street is hoping for signs that the economy is on the rebound, but it doesn't want to see growth that is so strong that it might make the Federal Reserve more inclined to raise interest rates to rein in inflation.
The Dow Jones industrial average - about 65 points below its record close reached June 4 - has waffled over the past several weeks as bond yields ballooned, stoking jitters about high rates putting a damper on dealmaking and making stocks look less valuable than bonds.
Though most analysts say the stock market will keep wobbling until at least mid-July, when earnings reports are under way, a couple of pieces of economic data this week could give investors some idea of where bond yields are headed and what the Fed might decide at its next meeting.
The Commerce Department reports Thursday on the international trade balance and Friday on retail sales. The trade deficit is expected to have widened to $59.0 billion in May from $58.5 billion in April, according to the consensus estimate of economists surveyed Friday by Thomson Financial, while retail sales are anticipated to have risen about 0.3 per cent, smaller than May's jump of 1.4 per cent.
The trade deficit, or the gap between what America sells overseas and what it imports, should tell investors how well US exporters are faring, and give them an indication of how much prices are rising.
Any sign that inflation is accelerating could exacerbate worries about Treasury bond yields surging and a possible interest rate hike from Fed, which said last month it wants to see more evidence that inflation is truly under control. If investors are uneasy about inflation, the market could see a return of the turbulence that sent stock prices fluctuating in June.
Retail sales, meanwhile, will tell investors whether the US consumer is staying resilient in the face of high energy prices and a sluggish housing market. Consumer spending has remained fairly strong despite the recent economic slowdown, and has given stock investors incentive to keep buying.
Last week, when the midweek July Fourth holiday muted Wall Street's dealings, the Dow rose 203.06 points, or 1.51 per cent; the S&P 500 rose 27.09 points, or 1.80 per cent; and the Nasdaq advanced 63.28, or 2.43 per cent.
Wall Street will continue to closely monitor bond yields, which have risen since early June and stoked concerns about high rates crimping dealmaking. Investors will also keep an eye on crude-oil prices, which have been rising to their highest levels since last August. High energy prices accelerate inflation, and could prompt the Fed to consider a rate hike.
The Federal Reserve reports Monday on May consumer credit, which the market expects to rise $5.0 billion compared to April's increase of $2.6 billion.
The Commerce Department releases data Tuesday on May wholesale inventories. The market anticipates a monthly rise of 0.6 per cent, after April's 0.3 per cent uptick.