It should surprise no one who watches the ups and downs of Wall Street that a horse named Street Sense would come from way behind to win the Kentucky Derby. The week ahead looks like it will put everyone's street sense to the test as a louder chorus of market watchers use the word "caution" when it comes to buying stocks.
This is a big week for market news events. The Fed's meeting Wednesday will be the highlight, but there are plenty of corporate stories to keep the market buzzing as it continues to move into uncharted territory. Earnings news is winding down, but no doubt another wave of merger headlines will punch up stock prices. Plenty of noise should continue to come from a group of ongoing takeover sagas including the possible marriage of financial information vendors Reuters and Thomson; Dutch bank ABN Amro's waltz with its ring of suitors, and News Corp.'s so far unrequited effort to get Dow Jones and its flagship Wall Street Journal.
The Blue Chip Dow 30's trek beyond 13,000 is setting records of its own. The 23 positive days for the Dow in the last 26 is a record winning streak, and was last seen in 1944. Last week, the Dow gained 143 points, or 1.1%, scoring a new intraday high of 13,284 along the way. Year-to-date, the Dow is 6.4% higher.
The S&P 500, celebrating its first close above 1500 in seven years last week, rose 0.8% to end the week at 1505, just 22 points shy of its record close. The S&P is 6.2% higher for the year to date. The Nasdaq meanwhile rose 15 points, or 0.6% to hit a new six year high. Nasdaq is up 6.5% for the year so far. The Dow Jones Wilshire 5000, was up 101 points this week and closed at a record. The Russell 2000 closed one point away from the record close it set in April.
But analysts are getting concerned that the market will very soon give back some gains. In CNBC.com writer Phyllis Goffney's "Market Outlook: Proceed with Caution," Bear Stearns' Bill Nichols says he sees stocks very close to being overbought. He is not alone. Also, Barron's Trader column this weekend is headlined "Even the Bulls Aren't so Bullish."
So we went to one of our own market gurus. "I'm an optimist," says our Larry Kudlow. (As if we didn't know!) "You get these runs and you're going to get pullbacks. I think it's full speed ahead, and I'm looking for Dow 14,000." Remember that it was Kudlow who told us the road to 12,000 and 13,000 was the greatest story never told when many others weren't.
Kudlow says he's watching the breadth of the rally and sees it as encouraging that transports and utilities have moved along with the Dow.
"I'm impressed with the Dow theory. It has a good history. It's telling you not only is the market for real, it's going to keep going," says Kudlow.
Other factors helping stocks last week include dipping oil prices. Crude lost 6.8% last week, dropping $4.53 per barrel to $61.93. Gasoline fell 1.9% to $2.2164 per gallon on the Nymex.
The dollar also recovered a bit. It was 0.4% higher against the euro, and 0.5% against the yen. But the dollar remains 2.9% off vs. the euro, year to date.
Some earnings highlights include McKesson Monday, Disney, Cisco, Tyco and Electronic Arts on Tuesday and Toll Brothers Wednesday. News Corp. may also report earnings Wednesday. Chain stores' April sales are reported Thursday and those numbers should help reveal some of what we will see shortly in the retail industry's upcoming earnings. Our Margaret Brennan, who follows the industry, says her contacts say to expect some real weakness.
The Fed holds a one day meeting Wednesday and is not expected to make a move on interest rates. "I think they're going to be more firmly implanting neutral...keep the inflation concern out there and flag the weaker economy," says our Steve Liesman. "The Fed feels right now it is adequately positioned to ride out uncertainty."
Besides the Fed, there's a batch of data markets will be watching. On Monday, consumer credit is released in the afternoon. Wholesale inventories and the NFIB survey are released Tuesday. Initial jobless claims, international trade and import prices are reported Thursday. Friday brings inflation data in producer prices, as well as April retail sales and business inventories data.
On Thursday, rate decisions by the Bank of England and the European Central Bank will be announced before Wall Street opens.
With the Fed's meeting, Fed speakers are quiet next week. But on Thursday, the Fed's Michael Moskow makes the opening remarks at the Payments Conference in Chicago and Fed Governor Randall Kroszner speaks at the same event. Former Fed Chairman Alan Greenspan speaks Monday to the American Hospital Association at the Hilton Washington.
Our Liz Claman will report Monday on Berkshire Hathaway's weekend annual shareholder meeting where Buffett once more warned on the dangers of hedge funds trading strategies. He also said Berkshire may need several chief investment officers to replace him when he's gone. (See CNBC.com's special look at Buffett's world including information on Growing up Buffett, which has information about Donny Deutsch's upcoming interview with Buffett's children Monday night)
Bio's Big Bash
The week also kicks off with Mike Huckman's coverage of BIO 2007, the biotech world's biggest gathering. Huckman will report from the conference in Boston, interviewing a number of CEOs. He will also show us his exclusive interview with Michael J. Fox, who will be delivering the lunchtime keynote address. Huckman says we will hear Fox's new message for the drug and biotech industries.
The conference is expected to be attended by about 20,000. Scientific data is not delivered there. "It's more about business development and promotion," says Huckman. The conference includes a job fair, and it also is a place where hundreds of cities, states, regions and countries set up booths to try to lure biotechs to locate in their areas. There are also "thousands of partnership meetings between big pharma and biotech where they kind of scope each other out," says Huckman.
Lots of Pomp
The British monarchy's visit to Washington this week is causing quite the social stir in that city. Cambridge Energy Research Chairman Dan Yergin, CNBC's Global Energy Analyst, will be among guests at a British Embassy tea party. The Queen, he says, is very interested in "green." (See Yergin's commentary on CNBC.com on the proposal coming up in Congress this week on fuel efficiency)
The Big Picture
The cable industry converges in Las Vegas this week. Starting Monday, our Erin Burnett will be at the show where the industry's executives will be discussing such things as the big opportunities in telecommunications, on demand television and the competitive pressures on their industry. Julia Boorstin will also be reporting from there Tuesday.
Speaking of media, Spider-Man 3 swung to a box office record this weekend, taking in $148 million in its first three days, putting it ahead of "Pirates of the Caribbean: Dead Man's Chest." Johnny Depp and his pirates will have another chance to take on Spidey when the third Pirates film is released later this month.
Around The World
The French presidential elections were underway Sunday, with early reports showing conservative Nicolas Sarkozy in the lead. Socialist Segolene Royal, meanwhile, says a victory by Sarkozy could spark violence in suburbs where he is unpopular and where youths rioted two years ago. See why Jim Cramer thinks Sarkozy would be good for France and make French stocks a buy in CNBC's Europe's special report on the French elections on CNBC.com. (Cramer: Bullish on France)
China's Central Bank Governor Zhou Xiaochuan said this weekend that China's stock market bubble was a concern and that the Central Bank is watching asset prices, along with inflation. He says there's no evidence inflation is out of control but that this year's inflation rate will be higher than last year. We watch closely when Chinese officials comment on their stock market, with February's tumble in stock prices in mind. The Shanghai stock index is up more than 40% this year so far.
Icahn Rings Up Motorola
Investor Carl Icahn takes on Motorola's management and board Monday when his battle to win a seat on the board will be decided at the company's annual shareholder meeting in Chicago. Our Mary Thompson will be there. An optimistic Icahn did an exclusive interview with our David Faber last week. Motorola meanwhile opposes Icahn as a board member, but shareholders will have their say at the late afternoon meeting.