Can the stock market rally continue?
(MoneyWatch) Ten weeks ago, global stocks tumbled to the lows of the year on fears of a global economic slowdown and uncertainty over the European debt crisis. Since then, investors have become convinced that the much-feared slowdown has arrived. The U.S. economy grew by only 1.5 percent in the second quarter and the job market has essentially stalled; Chinese factory output rose at the slowest pace in three years, new loans are at 10-month lows and export growth is grinding to a halt; and even Germany, the engine of European growth is feeling the pain, with declines in manufacturing orders, industrial output, imports and exports.
In the perverse land of Wall Street, those bad news nuggets may actually be good news, since they could spur central bank intervention by the Federal Reserve, the People's Bank of China and the European Central Bank, to name a few. Concurrently, the eurozone/Greek/Spanish/Italian drama seems to have gone on summer holiday or Olympic hiatus. Don't take this to mean that all is well - just that the crisis is not in one of its acute phases right now. The ailing patient is still in the critical care unit, but the condition has stabilized.
The combination of potential central bank action, along with less bad news out of Europe, has helped push U.S. stocks 10 percent higher since early June, but as the dog days of summer wear on, can the rally continue?
There will be a few more data points this week that could shed additional light on the situation. Retail sales are expected to bounce back from June's disappointing decline. Additionally, a number of large retailers will report quarterly results, including Walmart, Gap, Dollar Tree and Sears.
U.S. inflation data will be in focus, as the worst drought in at least a half a century has destroyed over 15 percent of the country's expected corn crop over the past month and prices have surged to over $8 a bushel. Still, economists expect that rising corn prices may have limited impact on U.S. inflation and overall prices are likely to remain muted, providing Bernanke and Co. plenty of wiggle room to futz with monetary policy.
-- DJIA: 13,207, up 0.9% on week, up 8.1% on year (7% below all-time high of 14,164 reached in October 2007)
-- S&P 500: 1,405, up 1.1% on week, up 11.8% on year (5th consecutive week of gains, 10% below all-time high reached in October, 2007)
-- NASDAQ: 3,020, up 1.8% on week, up 16% on year
-- September Crude Oil: $92.87, up 1.6% on week
-- December Gold: $1,622.80, up .8% on week
-- AAA National Average Price for Gallon of Regular Gas: $3.68 (highest since late May)
THE WEEK AHEAD:
Greece Q2 GDP
8:30 Retail sales
10:00 Business inventories
7:00 MBA mortgage purchase applications index
8:30 Empire State manufacturing
9:15 Industrial production
10:00 Housing market index
Walmart, Gap, Dollar Tree, Sears
8:30 Weekly jobless claims
8:30 Housing starts
10:00 Philadelphia Fed survey
9:55 Consumer sentiment
10:00 Leading indicators
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