August: The Thrill Is Gone

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By Justin Lahart
Staff Reporter

Ho hum.

Wall Street is usually driven by news. Blowout quarters that kill the shorts, murmurings from some

Fed

governor that send money managers ducking for cover, whispers that a company will miss its quarter: Who needs bungee jumping? But for the week beginning Aug. 4, adrenaline freaks will likely be better off looking for their fix elsewhere. Perhaps in Asia amidst the currency crazies.

With earnings season is over, economic factors normally take the lead in the stock market. Jobs numbers, the

Producer Price Index

, each new bit of data sends stocks into a tizzy on its release (only to be forgotten hours later as the market braces itself for the

next

bit of data). That won't be happening.

"It's a weak week for economic numbers," says Bob Brusca, chief economist at

Nikko Securities

, who characterizes the reports set for release as "minor league." "The key thing to look at is the book." The tan, or beige (or, if you're in retail, taupe) book, a collection of largely anecdotal evidence about the economic climate gathered by the Federal Reserve's regional banks, is set for release Wednesday at 2 p.m. EDT.

"Everyone is going to be looking at the data on the labor markets," says Suzanne Rizzo, U.S. economist at

Maria Fiorini Ramirez Inc.

, of the tan book.

With the dearth of news on either the earnings or economic front, the week's character looks like it will be more of a pitcher's game, with the bulls and bears vying for the market's sentiment after Friday's selloff, than the slugfests we've been treated to lately. And while it might not be as exciting to watch, it's important to remember that it's still hardball.

"I think this is the neatest thing I've seen in a long time," says one head of trading of the drop on Friday. "I'd like to see it down 500 points. I think it would be real healthy if we had a consolidation."

That said, he doesn't expect stocks to drop.

"I think that people are going to see it as a buying opportunity," he frets.

Reinforcing expectations of a rebound Monday morning,

S&P 500

futures closed sharply higher than the cash prices on Friday afternoon. Generally when futures close sharply higher than cash, the cash prices jump higher as program traders play catch-up.

Hugh Johnson, chief investment officer at

First Albany

, expects inflation worries to take control of the market after Friday's slew of stronger-than-expected economic reports.

"There's no question that the labor markets are tight. There's no question that some of the early warning signs

of inflation are perking up," he says. "Last week there was still that good old sense of urgency to buy stocks. That has been replaced by a very guarded mood."

Johnson expects people will start mumbling about a the possibility of a rate hike at the Aug. 19

Federal Open Market Committee

meeting. But Nikko's Brusca scoffs at the idea of the Federal Reserve raising rates.

"I don't think anybody thinks that now. I don't think

Alan Greenspan has enough evidence to start going ahead and cranking on interest rates. The Fed needs a smoking gun."

Brusca thinks that Friday's selloff in the bond market had as much to do with traders bringing down prices ahead of the Treasury auctions on Tuesday, Wednesday and Thursday as it did with any of the economic data. "By the end of the week, the bond market will close higher," he says.

The earnings highlight of the week is

Cisco

(CSCO) - Get Report

, due to report fiscal fourth-quarter earnings after the close on Tuesday.

(As originally published, this story incorrectly said that Cisco was reporting its second-quarter earnings.)

"Cisco looks tremendous," gushes one trader. "If they do well, they'll blow through 90 and any shorts are going to get squeezed. That will determine where the networkers go."

First Call

consensus expectations are for Cisco, which closed Friday at 79 13/16, to earn 55 cents a share.

Also set to report second-quarter earnings Tuesday are

Aetna

(AET)

, expected to earn $1.27 a share, and

Viacom

(VIA:AMEX), expected to lose 14 cents a share.

America Online

(AOL)

reports Thursday. First Call estimates are for AOL to earn 7 cents per share.