By Laura Mandaro
U.S. stock investors in the week ahead will grapple with an
increasingly familiar theme -- that better economic data may ring a
death knell for the era of the ultralow rates that helped markets
rebound this year.
The S&P 500 (SPX) and the Dow Jones Industrial Average (DJI)
ended lower in the past week, unable to shrug off rate shivers
after Federal Reserve detailed an end to some of its special
liquidity programs. These have effectively lowered rates on many
consumer loans. The Fed also improved its outlook on the
economy.
"From the market's perception, the Fed is probably closer to
having to raise rates at some point," said John Stoltzfus, senior
market strategist at Ticonderoga Securities, a New York
brokerage.
Such rate increases, while still months or even a year in the
future, are unsettling to investors in stocks and commodities,
because they'll take away one of the reasons those investments have
surged this year.
A fed funds rate near 0%, and trillions in dollars in special
Fed lending programs have helped drive down mortgage rates and
lower business borrowing costs, improving the outlook for corporate
profits. Stocks have jumped 65% since early March on expectations
that profit, and then revenue, would start to accelerate after last
year's dismal performance.
Stocks and commodities have also got a lift from the Fed's
actions because they have made the U.S. dollar one of the cheapest
currencies to borrow.
In this climate, the weekly economic indicators now are more
important to investors than ever. And they're more difficult to
read.
A speedy recovery in the labor market, housing and manufacturing
bodes well for consumer spending and corporate bottom lines, as
well as demand for oil and copper. But faster growth also implies
the Fed is getting closer to raising lending rates.
These are the cross-currents running through the market,
Stoltzfus said.
"The market is considering whether we might see a shift to an
environment where we see the U.S. dollar strengthen - and equities
ratchet higher because economic fundamentals are better," Stoltzfus
said.
Any positive news from the U.S. economy may again vie with
simmering debt problems in southern Europe and the Middle East.
Warnings from ratings agencies this month about some countries'
ability to stay current on their debt payments also weighed on the
U.S. market in the past week.
Week ahead
In the week ahead, shortened by Friday's Christmas holiday,
there's a rush of economic data that will be scrutinized for its
implications for Fed rate policy.
Much of the key releases come Tuesday and Wednesday.
Economists are expecting the U.S. government has revised its
estimate for real gross domestic product a tad lower, to 2.7% from
a 2.8%.
They've forecast existing home sales rebounded in November to a
6.25 million pace from 6.10 million.
And they expect a survey of consumer sentiment edged higher to
74 from 73.4.
"Economic indicators are expected to roll in on the positive
side next week," wrote Brian Bethune and Nigel Gault of IHS Global
Insight.
Investors may also review weekly shopping data for clues on
whether consumers became more free-wheeling with their spending
during the last weekend before Christmas.
Health-care stocks could also react to legislative efforts in
Washington, D.C. Senate Democrats will try to wade through
time-consuming procedural rules -- and pull together enough support
-- to hold a vote on a wide-ranging health-care bill before
Christmas.
Six S&P 500 companies are on tap to announce quarterly
results, including some for their fiscal fourth quarters.
Con-Agra Food Inc. (CAG), Jabil Circuit Inc. (JBL), Walgreen Co.
(WAG), Micron Technology Inc. (MU), Red Hat Inc. (RHT) and Cintas
Corp. (CTAS) are all scheduled to release results.
The technology sector could again take top billing.
Gains in bellwethers such as Oracle Corp. (ORCL) helped propel
the Nasdaq Composite (RIXF) to a weekly rise of 1% and helped
cement the tech sector's spot as the best-performing group on the
S&P 500 for the year.
And oil futures could react to statements coming out of the
Organization for Petroleum Exporting Countries' meeting Tuesday in
Angola. It's not expected to change the cartel's output target.
Last week, oil futures gained more than 6%, based on the most
active contract. Gold futures lost about 1.1% and the U.S. dollar
index (DXY) added 1.6%.