Innovation Update
Coming Week: Searching for Signs
Gregg Greenberg
12/10/06 - 09:50 AM EST
Wall Street may be approaching a holiday slowdown, but the action in the coming week likely will be spirited.
In addition to inflation data and big-name earnings, the market will be watching the Federal Reserve's last meeting of 2006 for clues about what the central bank plans to do in 2007.
In recent weeks, economic data have been pointing to a slowdown in the economy, creating concerns about a so-called hard landing scenario. At the same time, the data raised many traders' hopes that the Fed will cut its target rate early next year.
Last week's trading, however, culminated with a stronger-than-expected jobs report for November. While most analysts don't expect the Fed to make any changes to interest rates at its meeting on Tuesday, Friday's jobs report heightens the impact of the committee's policy statement.
Immediately following the employment data, rate-cut odds for January dropped to 10% from 14%, while March odds fell to 32% from 48%. Chances for a May cut slipped to 95% from 100%.
"If [the Fed is] planning to cut rates in March, then they need to start telegraphing it to the market at Tuesday's meeting," says Paul Mendelsohn, chief investment officer at Windham Financial.
Robert Pavlik, chief investment officer for Oaktree Asset Management, says recent hawkish comments by Fed Chairman Ben Bernanke have already tempered expectations for a rate cut in the first quarter of 2007.
Retail, Inflation Data on Tap
The week's economic festivities start on Monday with the release of October wholesale inventories. According to Thomson First Call, economists expect the inventories to rise 0.6%, compared with growth of 0.8% in September. In addition to the Fed policy statement, Tuesday will bring the October trade balance and the Treasury budget for November. Economists project the trade deficit narrowed to $63.5 billion from $64.3 billion a month earlier, while the Treasury budget deficit is expected to decrease to $74 billion from $83.1 billion. Wednesday will be a big day for those tracking the nation's merchants. November retail sales will be released, and they are projected to have grown 0.3%, excluding autos, after a drop of 0.4% in October. Meanwhile, business inventories are expected to rise 0.5% for October, compared with 0.4% growth the month prior. On Thursday, November import and export data arrive. And halfway around the world, OPEC members are planning to meet in Nigeria to discuss production cuts. This meeting follows the October meeting where OPEC announced production cuts of 1.2 million barrels in a bid to stabilize the decline in the price of oil.Final Burst of Earnings
Traders looking to put some stocks in their stockings will be treated to one final week of big-name earnings before the holiday slowdown begins in earnest. On the financials side, two big-name brokers will be dishing out their latest profit figures. Goldman Sachs(GS Quote) will be releasing results on Tuesday, and analysts expect earnings of $5.91 a share, up from the investment bank's profit of $3.35 a share a year ago. Bear Stearns (BSC Quote) steps up to the plate Thursday with its fourth-quarter figures. According to First Call, Wall Street projects earnings of $3.31 a share, up from $2.90 last year. Several retailers also will be in the spotlight. Most notably, Best Buy (BBY Quote) will reports its third-quarter figures Tuesday, and Wall Street will be looking to see if a recent flat-screen TV price war with Wal-Mart (WMT Quote) and Circuit City (CC Quote) has cut into the consumer electronics giant's margins. Analysts expect Best Buy to report earnings of 35 cents a share, up from the 28 cents a share the retailer posted last year. Other retailers on tap for the week include Dollar General (DG Quote) on Tuesday and Costco (COST Quote) and Pier 1(PIR Quote) on Thursday. In the tech sector, look for earnings from Adobe Systems(ADBE Quote) and Ciena(CIEN Quote) Thursday. |
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