This week is likely to provide more evidence of the overwhelming sentiment that, yes, things are finally starting to get better.
The mood has changed across all levels of the investment spectrum -- from individual investors to top-level policy makers across the world. On Friday, a senior official at the International Monetary Fund said the group will lift its 2010 global growth forecast, noting that while the outlook is still shaky, the pace of economic decline has moderated.
In the U.S., initial jobless claims are easing, and even with higher mortgage rates, there are still encouraging signals from the depressed housing market. While none of this means the economy has turned around quite yet, the index of leading indicators is surging, which is seen by some as an indication that a recovery is imminent.
"Recent data suggest the recession is ending," says a recent report by market strategists at Barclays Capital, citing those and other factors as evidence that "positive growth is imminent."
Slated for this week week are new and existing home sales data, durable goods orders, final figures for economic output during the first quarter, and consumer-related data on personal income, spending, inflation and sentiment. Investors also are likely to scrutinize weekly jobless claims, hoping that "continuous" claims continued to fall, as they did in the last report.
Arpitha Bykere, an economic analyst for the bearish Nouriel Roubini's RGEMonitor.com, says such a result would be "a huge positive because it shows companies have started hiring."
Another key event this week will be the
interest rate decision on Wednesday. Investors expect the Federal Open Market Committee to hold rates steady but will be analyzing the Fed's statement for clues about when that might change.
Inflation concerns have heated up significantly as the government expands its balance sheet and the federal deficit to finance its massive recovery plans. Raising interest rates would ease inflation -- which hasn't actually picked up yet -- but low rates are still needed to propel the economy into full gear. The Fed is working to balance those two factors.
the Fed is going to keep the rates on hold, but looking at the recent sentiment in the market, they're increasingly concerned that the Fed is going to hike rates sooner than expected," says Bykere, who doesn't expect such a move until next year. "Lots of these concerns have been overstated in recent days in the market."
A regulatory overhaul proposed by the Obama administration will continue to be debated and analyzed on Capitol Hill this week as well. The proposal would affect financial firms across the board, including powerhouses like
Bank of America
. Smaller regional lenders like
and even some companies that aren't banks but have lending units, like
, also will be touched.
While Congress begins to formulate its own proposal for an eventual law, Fed Chairman Ben Bernanke will be testifying before a House committee on Thursday about BofA's complicated acquisition of
. Evidence has been unveiled that the Fed chief and former Treasury Secretary Henry Paulson pressured BofA CEO Ken Lewis to seal the deal late last year despite rising reservations due to Merrill's escalating losses.
Over the past few weeks, it seems that investors have been processing this constant flutter of news and contradictory signals about how long it will take for corporate earnings to thrive once again. The
Dow Jones Industrial Average
has swung within a range of about 100 to 200 points in each of the past five trading sessions. The fluctuations reflect concerns and assurances about inflation, employment, housing and eventual recovery in a new regulatory paradigm.
Bykere believes that economic performance toward the end of the year will make or break the sideways pattern. Most indicators predict second-half growth, but Bykere believes "the markets are going to take it very badly" if the improvements don't materialize.
But for the coming week, it may simply be more of the same, making it tough to predict dips and peaks on conflicting signals.
"On a day-to-day basis, trying to anticipate the mood swings of a group that considers the time between breakfast and lunch as a long-term investment horizon is a guarantee that you'll be institutionalized for schizophrenia," says John Wilson, chief technical strategist at Morgan Keegan.