Terrorism and accounting scandal have held sway in the stock market for so long that it came as a shock Friday to see what can happen in their absence, or at least the perception of it. Bulls hope Friday's positive tone can be maintained in the coming week.
"I'm expecting a little pop," said Sung Won Sohn, chief economist at Wells Fargo. Sohn is one of several economists and traders who agreed that if the Fourth of July holiday weekend ends without any terrorist attacks, significant problems in the Middle East or more accounting drama, the stock market could continue its "sigh of relief" rally.
Sohn also noted that many investors sold their long positions -- just in case -- over the holiday and did not trade in the shortened Friday session. "They've got to put them back on," Sohn said.
Stocks stormed higher Friday after losing ground earlier in the week. Over the three and a half sessions that made up last week's holiday-shorted schedule, the
Dow Jones Industrial Average
added 1.4% to 9380, while the
was unchanged at 989 and the
-- despite a 5% gain Friday -- lost 1% to 1448.
For a combination of reasons, there's a decent chance next week's economic news will be positive. The producer price index, which measures the price changes in the manufacturing sector and is closely watched for signs of inflation, comes out on Thursday. The consensus is for an unchanged reading.
Also due Thursday is a report that is expected to show retail sales rose 0.6% in June. "We're getting some signs like from stores such as
that they're doing better in June," said John Lonski, chief economist for Moody's Investors Services.
Economists also point out that the pace of auto sales for June released this week improved over May, which could carry over to other consumer purchases.
The positive auto sales figures "could be a reflection that despite the setback in the stock market, consumers are going about their daily business," of buying goods and services, Sohn said.
A report Friday will probably show chain store sales rose 4.2% in June. The consumer sentiment survey conducted by the University of Michigan also is due out on Friday with estimates pegged at 93.3, up from the prior 92.4.
But despite these expected positive numbers, it's hard to find someone willing to believe the bear markets are now ready for a turnaround.
"At some point we're going to have to start replacing fundamental issues with emotional issues," said Joel Naroff, president of Naroff Economic Advisors. However, he doesn't think that will happen the week.
Earnings due out this week include
"The new orders reports are growing sequentially, but they're not making the equities happy," Lonski said. "We're still struggling with high P/E ratios. If you look at the forward looking numbers, they're still 22 times their earnings and you still have a number of shares with P/E's above 30."
High valuations, and the lack of an event that would improve long-term sentiment, such as capturing Osama bin Laden, Lonski said, will continue to limit any upside.