Innovation Update

Return to Article

Coming Week: Warm Spell

Gregg Greenberg

Traders may have enjoyed the ability to roam outside during this winter's unseasonably warm weather, but the balmy climate may come back to haunt them in the coming week as they dig through questionable economic data.

"It's going to be a big week for economic data, but a lot of it will be compromised by so-called seasonal adjustments," says Gina Martin, economist at Wachovia. "The warm weather in January may cause some unforeseen swings in the data, making it look rosier than it would have been otherwise, and that could cause some volatility in the markets as well."

Already this month, strong retail sales and housing starts have been attributed to January's gentle weather. On Monday, January new-home sales numbers arrive, and that data could have a similar boost from the sunny climate. Economists surveyed by Thomson First Call expect the annual rate for new-home sales to total 1.26 million for the month. That figure is slightly down from December's 1.27 million rate, which was stronger than expected.

"People attribute the strength in new-home sales to the warm winter, and the market wants to see that trend continue," says Robert Pavlik, chief investment strategist for Oaktree Asset Management. "If [new-homes sales] drop too much then the talk of the housing bubble popping will get louder and will scare the market."

Pavlik says similar market jabber could sink stocks when revisions to the fourth-quarter gross domestic product are released on Tuesday morning. Economists are looking for growth of 1.5%, up from the prior estimate of 1.1%. The GDP deflator, a well-watched inflation indicator, is expected to remain steady at 3%.

"If we get a GDP or deflator number that's much stronger than the consensus estimate, then it could hurt the market because people will be talking about a tougher Fed," says Pavlik.

Also on tap for Tuesday will be this month's consumer confidence data, which is expected to dip to 105 from 106.3 the prior month. Also Tuesday, the Chicago PMI for February will offer insight into the health of the manufacturing sector. Economists are anticipating a reading of 58.2, down from 58.5 in January. Traders also will get another glimpse at the housing market with the release of existing-home sales figures.

The lion's share of the week's data comes in on Wednesday. Among the highlights will be February auto sales numbers, personal income and spending data for January, as well as January construction spending.

The ISM manufacturing index for February also will be released Wednesday. Economists are expecting a reading of 55.1, up from January's 54.8. The ISM services report will be released on Friday.

No Problems with Earnings

Earnings season may be winding down, but there are still a few notable names left to weigh in, especially in the retail sector. Traders will see if the market can absorb the figures with the same aplomb it demonstrated with earlier profit reports.

"Looking back, the S&P 500 is at four-and-a-half-year highs, so it seems the market had no problems with earnings last quarter," says Brian Williamson, equity trader at Boston Company Asset Management.

The consumer, as well as the housing market, will be in the spotlight on Monday when Lowe's(LOW Quote) releases its fourth-quarter results. According to Thomson First Call, analysts expect earnings of 80 cents a share and revenue of $10.44 billion. The home-improvement retailer earned 64 cents a share a year earlier.

On Tuesday, the market will hear from the likes of Charter Communications(CHTR Quote), Deckers Outdoor(DECK Quote) and H.J. Heinz(HNZ Quote).

Also on Tuesday's earnings docket are retailers BJ's Wholesale Club(BJ Quote) and Staples(SPLS Quote).

The retailers continue to roll on Wednesday, with reports from AutoZone (AZO Quote), Chico's FAS(CHS Quote), PetsMart(PETM Quote) and Saks(SKS Quote).

Homebuilder Hovnanian Enterprises(HOV Quote) will report its first-quarter profit data Wednesday. Analysts are looking for the company to earn $1.22 a share, slightly down from $1.25 last year, on sales of $1.28 billion.

Among some of the notable names on tap for Thursday are Ciena (CIEN Quote), Del Monte(DLM Quote), Pep Boys(PBY Quote) and Tenet Healthcare(THC Quote).

World Wrestling Entertainment(WWE Quote) will try to slam analyst estimates on Thursday. Wall Street is looking for the company to post earnings of 11 cents a share for the quarter, down from the 16 cents earned a year earlier, on revenue of $87 million.