By Sue Chang, MarketWatch
SAN FRANCISCO (MarketWatch) -- U.S. stock advances are expected
to run into resistance next week, following the longest winning
streak since January 2011, as a lack of fresh incentives and
opacity in Europe catch up with equities.
The tone and the tenor of the Federal Reserve minutes due on
Wednesday will also dictate the market's mood as investors look for
more clarity on possible additional economic stimulus measures from
the central bank.
"The stock market has enjoyed a nice run in recent weeks, but
moving above the April highs may prove to be a challenge. Bull
markets, like bear markets, need constant feeding," said Alan
Gayle, a senior investment strategist at Ridgeworth Investments.
"The current run appears to have been fed by hopes for further
global monetary stimulus and Quantitative Easing 3 and a lack of
bad news from the EU--not strengthening economic momentum."
Since July 6, the Dow Jones Industrial Average (DJI) has
advanced for six straight weeks for a cumulative 4% rise to 13,275
on Friday, closing in on April's high of 13,316. The S&P 500
(SPX) climbed 4.7% since July 6 to 1,418, near April's peak of
1,422, while the Nasdaq Composite (RIXF) added 5.8% during five
weeks of gains since July 13 to close at 3,076, inching toward
April's high of 3,128.
After a brief intermission, Europe is likely to return to center
stage as European leaders once again look for ways to prevent the
Greek economy from succumbing to cardiac arrest.
"More important than the economic data will be the political
maneuvering," said Marc Chandler, global head of currency strategy
at Brown Brothers Harriman, in a note to clients.
Greek Prime Minister Antonis Samaras plans to meet with
President Jean-Claude Juncker of the European Council, German
Chancellor Angela Merkel and French President François Hollande in
quick succession next week. Samaras will reportedly sound out
Merkel on his proposal to stretch the implementation of new
austerity measures over four years rather than the two years as
previously agreed.
The Greek economy posted a 6.2% year-on-year contraction in the
second quarter, making it difficult for the country to improve its
balance sheet, according to economists at Rabobank.
Germany and France have taken leading roles in the international
effort to resolve Europe's lingering financial problems but the
process has been bogged down by politics, particularly in
Germany.
On the domestic front, U.S. investors will parse Fed minutes
from the July 31-Aug. 1 meeting for hints on where the central
bank's bias lies on further easing.
"All eyes will be on any 'cost-benefit analysis' that went on at
the August meeting. With that said, expectations for Fed action in
September have been pared back recently in light of the July
employment and retail sales reports. This, coupled with a decent
August employment report, may buy the Fed some more time, lowering
the odds of action in September," strategists at RBC Capital
Markets said in a report.
Job growth in July exceeded expectations with employment outside
the farm sector rising by 163,000 workers, the fastest pace since
February.
Sales at U.S. retailers climbed 0.8% in July to a seasonally
adjusted $403.9 billion after falling for three months
straight.
The Federal Open Market Committee left the federal funds rate
target unchanged at zero to 0.25% when it met early August. But the
Fed lowered its outlook on the economy, noting that economic
activity had decelerated, and promised it "will provide additional
accommodation as needed."
Investors will also sift through a raft of housing and
manufacturing data for clues on where the economy is headed.
"While the housing data due next week will likely give signs of
continued healing from a steep decline, the durable goods orders
report will help investors gauge the current health of
manufacturing demand," said Gayle.
With the earnings season winding down, corporate news is likely
to have less sway on stocks than in previous weeks.
Among notable companies slated to report results next week are
Dell Inc. (DELL) and Hewlett-Packard Co. (HGH.XX) Dell, due to
announce after the closing bell on Tuesday, is projected to turn in
a second-quarter profit of 45 cents a share, on revenue of $14.7
billion, according to FactSet.
Hewlett-Packard, scheduled for Wednesday, is estimated to have
earned 98 cents a share on revenue of $30.19 billion in the fiscal
third quarter.
A number of retailers are also on tap to release quarterly
results, including Lowe's Cos. (LOW), Urban Outfitters Inc. (URBN),
Barnes & Noble Inc. (BKS), Best Buy Co. (BBY), American Eagle
Outfitters Inc. (AEO), Guess Inc. (GES), Pacific Sunwear of
California Inc. (PSUN), Big Lots Inc. (BIG), and Williams-Sonoma
Inc. (WSM).
Of the 474 companies that have reported second-quarter earnings
so far, 71% have reported better than expected earnings, while only
42% have reported sales above the mean estimate, said John Butters,
senior earnings analyst at FactSet.
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