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Coming Week: Shopper Spotlight

Robert Holmes

With the markets trading near record levels, traders will turn their attention to consumers -- and the prices they pay -- in the holiday-shortened coming week.

The market will look to a key report on consumer-level inflation report to affirm last week's sentiment that the Federal Reserve will not be raising interest rates anytime soon. Meanwhile, major retailers will begin to weigh in with their earnings reports for the key holiday selling season.

"It's an abbreviated week, so we expect the action to be light," said Larry Perruzzi, equity trader with Boston Company Asset Management. "With earnings winding down, the comments out of the Fed have been getting our attention. Looking ahead at the economic data, it appears the economy is growing at a healthy pace. Inflation seems to be under control, and the markets have reacted well to that."

The markets will get another clue about inflation with the release of January's consumer price index Wednesday. Economists are expecting a 0.1% rise in the index, down from December's jump of 0.5%. Excluding food and energy, the core CPI is expected to remain flat from the prior month at 0.2%.

Last week, the Labor Department said its producer price index eased 0.6% in January. The core index, which excludes food and energy prices, rose 0.2%, matching forecasts. The core rate advanced 1.8% year over year, within the Federal Reserve's comfort range of 1% to 2%.

The CPI report also comes on the heels of testimony in Washington last week from Fed Chairman Ben Bernanke that sent the markets soaring on the belief that a rate hike isn't likely this year.

He said Wednesday that inflation pressures appear to have abated somewhat, though he added that the "monthly data are noisy, however, and it will consequently be some time before we can be confident that underlying inflation is moderating as anticipated."

"Investors will look to next week's CPI data for further moderation in the inflation picture at the consumer level," says Randy Diamond, research sales trader with Miller Tabak. "Don't expect the Fed to change their stance that inflation is their biggest concern and the economy appears to be turning the corner."

Also on tap for Wednesday is the release of the minutes from the two-day January Fed meeting. The bank decided to keep its federal funds target unchanged at 5.25% for the fifth straight meeting, an outcome that had been widely expected on Wall Street.

While the U.S. policy-setting body has kept interest rates stable for months, the coming week could see changes overseas. On Tuesday, the Bank of Japan will meet to decide whether it will raise interest rates by 0.25 points. Currently, Japan's interest rates stand at 0.25%, the lowest among major economies.

"The Bank of Japan interest rate decision on Tuesday may be the highlight of the week," says Paul Mendelsohn, chief investment officer with Windham Financial. "Japan has been creating the liquidity that has been driving these markets, making this an important event. We'll see how it affects the dollar and how it affects the overall market."

Retail Round-Up

In terms of profit reports, it's all about the almighty consumer in the coming week as retailers dominate the earnings lineup.

"We're now in the tail-end of the earnings season, and we want to end on a high note," says Mendelsohn. "The forward guidance hasn't been very positive. Certainly, retail sales are going to continue to remain very important."

The onslaught begins with the world's biggest retailer, Wal-Mart(WMT Quote). Investors will be closely watching to see how the company's bottom line fared during a holiday period in which it recorded its first monthly same-store sales decline in a decade and sought to undercut rivals on prices, potentially hurting margins.

Analysts surveyed by Thomson First Call expect the Bentonville, Ark., giant to post earnings of 90 cents a share, up from 84 cents last year, on $99.33 billion in revenue.

Fellow Dow component Home Depot (HD Quote) also will report its quarterly figures Tuesday morning. The report will be the first since CEO Robert Nardelli left the company amid criticism for the retailer's declining sales and stagnant stock price.

Wall Street is looking for the home improvement retailer to report fourth-quarter earnings of 50 cents a share, down from 60 cents a year earlier, on sales of $20.8 billion.

On Wednesday, retailers reporting include Abercrombie & Fitch(ANF Quote), TJX (TJX Quote) and Zale (ZLC Quote).

J.C. Penney (JCP Quote) will report its results Thursday, and Home Depot rival Lowe's(LOW Quote) joins the fray on Friday.

Away from retail, computer titan Hewlett-Packard (HPQ Quote) will report its fiscal first-quarter earnings on Tuesday. Analysts project earnings of 62 cents a share and revenue of $24.28 billion. A year earlier, the company reported a profit of 48 cents a share and revenue of $22.66 billion.

Other companies reporting in the week include Elan(ELN Quote), Whole Foods(WFMI Quote), H&R Block (HRB Quote) and Toll Brothers(TOL Quote).

Staff reporter Gregg Greenberg contributed to this report.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting