The shortened post-holiday week promises to be anything but quiet, as a wave of economic news could turn investor focus away from the now normal diet of merger activity and onto a feast of economic data that could show the U.S. economy may indeed be more resilient than expected.
"We're really at a point where the turnaround appears more likely," says CNBC senior economics correspondent Steve Liesman. "I think the market's really coming to understand that."
Stock investors this past week fixated on action in the bond market, where rates were inching higher on an improving economic picture. The Dow, because of Thursday's rout, ended the week down 49 points or 0.4%, ending a seven-week winning streak. The Dow is up 3.4% for the month of May, and 8.4% year to date. The Nasdaq was off just 1 point for the week, and is holding its own with a 1.3% gain for the month and a 5.9% gain for the year. The S&P 500 rose above its all time closing high but lost seven points or 0.5% for the week and is now 11 points below the record. The index is up 2.3% for the month and 6.9% for the year.
Liesman expects Wall Street's economists to start raising their second-quarter growth forecasts and ratcheting up numbers for the year, based on recent data. "Based on (Thursday's) durable goods, Lehman went from 2.7, already pretty high, to 2.9 percent (GDP for second quarter)," he said. "I have little doubt that Q2 is going to be revised."
"It's not that the doomsayers had it wrong. We appear to have taken a much bigger hit in the first quarter than we thought," he said. A better picture of the first quarter will be available Thursday when preliminary first quarter GDP is reported. That number is now expected to be very weak, possibly below 1%.
A huge amount of data will hit the Street, starting Tuesday morning when consumer confidence is reported at 10 a.m. ADP's employment data for May is released Wednesday. The focus that day will be the FOMC minutes, reported at 2 p.m. Thursday is a heavy day for data with initial jobless claims and construction spending for April in addition to GDP. Chicago purchasing managers data is also reported Thursday, and there is a report on agriculture prices for May, released at 3 p.m.
May's employment report Friday is the highlight of the week. Personal income and spending are reported that day, plus ISM manufacturing data, pending home sales for April and consumer sentiment for May. Auto sales for May are also reported Friday.
"I think the Chicago Purchasing Managers will be big because the ISMs have been rising and recent and current durable goods have been indicating manufacturing is in positive transition. I think the employment report will be big but for slightly different reasons. People will be watching the unemployment level and wages to gauge changes in consumer demand. That will be an important measure of whether the consumer can survive high gas and food prices. The FOMC minutes will bring that out as well. One of the things the committee talks about is that a low unemployment rate is one of the positives in the economy even with high energy prices," CNBC’s Rick Santelli says.
But what the stock market will do with this has yet to be seen. "There are more signs the economy is getting stronger, not weaker. The big question is whether good economic news is good for the stock market or bad for the stock market," says our Larry Kudlow. "The hinge is the bond market."
Kudlow says the past week's market action and economic news were important. "I think we had a sea change this week, but confirmation won't come until you get the jobs report," he said.
Two key housing price reports are due out this week. On Tuesday, the Case-Schiller home price index for March is reported. Then on Friday the first quarter housing price index from OFHEO is released.
CNBC real estate expert Diana Olick will be covering the numbers.
"We've already seen price declines this year on a national level, especially at the higher end. Most in the know are predicting prices will continue to soften through the summer until sales figures start coming back up. This is not to say that some markets aren't appreciating at a steady pace. Real estate, after all, is all local," says Olick. "Prices year over year are negative for the first time in several decades and the fallout from the subprime mortgage crisis, i.e. tightening credit, is not helping prices. Of course, some would say that price reductions are important for the real estate market."
Liesman emphasizes that his view on the improving economy is not about housing. "I think the manufacturing turnaround is a better bet, and I think housing, like a young teenager, still has some issues to work out," he said.
"EYES ON NIGERIA," says Cambridge Energy Chairman Dan Yergin, CNBC's global energy analyst. Oil prices fell in the past week, losing 1.2% to $65.20 but prices did fluctuate with each headline from Nigeria. This coming Tuesday, Nigeria's new president takes office and rebels have vowed maximum disruption of oil production around that date. "At least recently, Nigeria has been our third largest source of oil imports, ahead of Venezuela and ahead of Saudi Arabia," says Yergin. "Almost a third of Nigeria's supply is shut in right now and Nigeria is a source of particularly high quality oil that is particularly good for making gasoline."
CONFERENCES Cowen holds a Technology Conference Wednesday through Friday in New York City; Deutsche Bank has an energy and utilities conference in Miami Wednesday and Thursday; Sanford Bernstein holds its Strategic Decisions Conference Wednesday through Friday in New York; Lehman Brothers holds a worldwide wireless conference on Thursday.
Exxon Mobil's annual meeting is Wednesday and our Mary Thompson will be there. Wal-Mart holds its annual meeting Friday.
FED SPEAK Fed Governor Randall Kroszner speaks on the U.S. Economic outlook Friday in Athens, Greece early Friday morning.
FUN DAY Wednesday is Fun Day or Fund Day on CNBC. You will hear from a host of five-star managers hourly as they guide us through their strategies and picks. Watch full coverage on CNBC and you can read about the managers Wednesday on CNBC.com.