Investors will keep hunting for clues next week as to whether the market's recent upswing is sustainable, or set to be eclipsed by a dark economic reality.
potential bankruptcy will still loom large, as will earnings reports from retailers,
and firms with major housing exposure. Data on building permits and housing starts on Tuesday should also provide evidence of whether the housing sector is nearing a bottom.
Banks also continue to be part of the equation, as investors guess whether the industry's healthy first quarter was the start of a recovery, or simply a reflection of special items and events that won't be repeated throughout the year. Investors shouldn't be surprised if more news related to the government's stress test and banks' capital positions emerges.
Those with shortfalls, like
Bank of America
, may provide more details on fundraising strategies, which must be provided to the Treasury Department by June 1. On the other end of the spectrum, companies like
, which received a clean bill of capital health from regulators, have applied to pay back government investments. If the government allows them to do so, as was rumored Friday afternoon, it will solidify their positions in the winners' circle of stronger banks.
"I think there will be a continued focus on financials, Detroit and retailers," says Len Blum, managing director at Westwood Capital, who believes the recovery will be slow. "It's more of the same -- the market's just looking to see if there was too much optimism in this rally."
Retailers provide a perfect example of mixed signals related to the impending economic recovery. A weak retail sales report for the month of April came out on Thursday, only to be followed by a sharp rise in consumer confidence levels on Friday. The latter data imply that shoppers might be willing to get out and spend again, but it's still questionable whether they have the capacity to do so in a tight credit environment with rising unemployment, declining home prices and less household wealth.
Next week will be chock full of reports and outlooks from retailers, which may provide additional clarity. Reports will be released by
on Wednesday; and
New York & Co.
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"People are scared about what they're going to say after the retail numbers this week," notes Bill Feingold, managing director, Newport Value Partners. He predicts a bigger focus will be on H-P on Tuesday, when the technology bellwether releases first-quarter results.
Also on the earnings calendar next week are home improvement retailers
(on Monday) and
(on Tuesday), as well as home builder
on Wednesday. Those reports will correlate with housing data set to be released by the government on Tuesday morning.
Feingold, who is shorting
shares, will also be watching the hearing set to take place in Congress on Tuesday regarding future regulation of ratings agencies. Firms like Moody's, Fitch and Standard & Poor's have come under fire for not predicting troubles that emerged from bad housing debt. The firms eventually downgraded securities of major financial firms like
American International Group
, Bank of America and now defunct Lehman Brothers. But some say it was too little, too late, since markets had already seized up and values had declined dramatically.
Feingold is in the
camp that believes conflicts of interest led to the lag in downgrades, since agencies' analyses are funded by the companies whose bonds they rate. He notes that
has a major holding in Moody's, from which it holds investment-grade ratings.
"Berkshire Hathaway owns 20% of Moody's, which to me is a completely unconscionable position," says Feingold. "I consider that just unconscionable that this big figure in the financial industry
Warren Buffett who gets a lot of attention for his firm's perfect ratings and owns a huge position in the ratings company."
The debate may not move the markets much, but it should provide an interesting aside over how to ascribe blame for the financial crisis, and how regulatory reform can help prevent future chaos.