By Laura Mandaro, MarketWatch
SAN FRANCISCO (MarketWatch) -- Will the next catalyst for the
stock market please step forward?
After U.S. stocks' best January in 15 months, stocks spent the
first full week of February in a tight zigzag around five-year
highs. Investors sat on the sidelines, they treaded water, they
lacked conviction -- in other words, they used up a lot of Wall
Street's favorite clichés for not doing much at all.
Volume was low, capped by the lowest volume day of the year
Friday as many on Wall Street headed out early ahead of a
commute-clogging winter storm. The S&P 500 (SPX) and the Nasdaq
Composite (RIXF) ended the week higher for the sixth week in a row,
though they gained less than 1% each.
The week ahead doesn't promise much in the way of catalysts. But
there are a few factors that could shake things up.
1. The bond market
The 10-year (10_YEAR) Treasury note yield is one to watch. The
benchmark note's yield popped above the 2% level in late January as
the Dow Jones Industrial Average (DJI) headed back to 14,000. The
rise in the yield, alongside mutual fund flow data showing
investors shifting into stock funds, ushered in a chorus of
speculation that the bond rally is finally bursting.
A sustained break above 2% on the 10-year yield "is a big 'if',"
said Richard Ross, global technical strategist at Auerbach Grayson
& Co. But if it were to happen "that would signal a short-term
shift in sentiment vis a vis fixed income." It's not clear, he
added, whether that rise would be viewed as a sign people are
headed more aggressively toward stocks--or as an inflationary sign,
and a headwind for the economy.
Treasury will auction $72 billion in bonds and notes next week,
including a $24 billion auction of 10-year notes on Wednesday.
2. The consumer
Investors will get more insight into consumers' ability to prop
up the economic recovery with two data releases -- retail sales for
January and consumer sentiment for early February.
Here, the data could be a drag. Economists expect little or no
growth in retail sales last month, larger due the expiration of a
payroll tax break that shrank paychecks; rising gasoline prices;
and delayed tax refunds.
More hope may come from companies. Coca-Cola Co. (KO), Fossil
Inc. (FOSL), Reynolds American Inc. (RAI), Lorillard Inc. (LO),
PepsiCo Inc. (PEP) and Kraft Foods Group Inc. (KRFT) are scheduled
to report quarterly reports in the next week.
Strength from consumer companies has been a bright spot in the
nearly-finished earnings season. Consumer discretionary and
consumer staples companies have posted 5.9% and 4.3% earnings
growth for the fourth quarter, outstripping the S&P 500's 3%
rise, according to FactSet.
Earnings from Ralph Lauren Corp. (RL) and Wyndham Worldwide
Corp. (WYN) were standouts in the past week, driving shares
higher.
"Absent something geopolitical, we'll need some outlier from an
earnings perspective to send markets one way or another," said
Scott Armiger, manager of the $500 million Christiana Trust at
Wilmington Savings Fund Society.
3. Europe
The euro zone's financial situation drove stock action for part
of the past week as a Spanish political scandal, and the
possibility Italy's former prime minister, Silvio Berlusconi, could
win re-election, sent stocks to their worst day of the year. The
euro zone's teetering economy, and the ability forpolicy maker's'
to fix it, could come to the fore again as the Group of 20 meets in
Moscow.
In a possible nod to these issues, on Thursday European Central
Bank President Mario Draghi stressed the accommodative stance of
the ECB, sending the euro (EURUSD) tumbling.
4. The State of the Union
Late Tuesday, President Barack Obama will give his State of the
Union address.
A key interest for markets will be what he says about the
sequester, or looming budget cuts. If Congress can't agree on a way
to avoid the sequester, $85 billion in cuts to defense and domestic
programs would begin on March 1. Such severe austerity would
provide a negative shock to markets. But the negotiations to avoid
it could also create some sect losers, say oil and gas companies
whose subsidies could be at ris
"We do not think the market is adequately discounting the risk
that sequestration cuts will stick," said Barclays bond analysts
led by Ajay Rajadhyaksha in research distributed Friday. "Even if
the cuts are enforced, more aggressive deficit reduction measures
will be needed if the U.S. is to stabilize its medium-term debt
profile," he said.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires