The Week Ahead
Any week bracketed by a day of lucky sevens (7/07/07) and Friday the thirteenth has got to be special for numbers obsessed Wall Street.
The numbers that matter this coming week will be the possible return to record levels on the Dow and S&P 500, both within striking distance after the past week's quiet but important move higher.
The Dow gained 203 points or 1.5% for the four-day holiday week, ending just 64 points below its record of 13,676 set on June 4. The Nasdaq gained 63 points or 2.4%, hitting a fresh 6-1/2 year high, and the S&P 500 rose 27 points, or 1.8%, ending just eight points shy of its all time high, also set four weeks ago.
"This is a classic stealth rally," says CNBC's Bob Pisani, who says stocks could revisit highs early in the week. Pisani said the market ignored the twin pressures of interest rates and oil prices and a number of stock groups broke out including retailers and homebuilders.
"A lot of people are betting we're getting better than expected GDP,” he said. “A lot of people are saying it will be closer to 3.0% for the second quarter."
Larry Kudlow agrees that the market is on a roll and the just-right economy is helping it. "We've got some good mojo working," he said. "Goldilocks is roaring." Kudlow says the economy is being led by business.
A burst of merger activity last week, including a big $26 billion Blackstone bid for Hilton, injected confidence back into a market that had been shuddering from worries about credit quality.
Other Market Action
Selling in Treasuries this week pushed the yield on the 10-year note to 5.195%. This past week, stocks shrugged off the moves in rates. "Should we get closer to or above 5.25% on the ten-year, you'll see stocks suffer a lot more than they have been.” says CNBC's Rick Santelli, from the Chicago futures pits. “I think that's the key."
But Santelli says the currency market is the one to watch, and that will be a clue to the action in bonds.
"The big story to watch next week, bar none, is the dollar,” he said. “What's going on here is the strength of the euro and high-yielding currencies vs. the dollar's weakness. Everybody I was talking to (Friday) was waiting to see how high a bid we could get on the strong employment data so they could sell the dollar," said Santelli.
"A weak dollar is not good for fixed income markets," he said. "It's easy to say the reason the dollar is weak is because the Fed is on hold and central banks in other parts of the world are raising rates. But I think it’s gotten to the point now that it's falling on the weight of the negative sentiment as well."
"What you want to think about is what the weak dollar will mean for their future purchases of dollar-denominated assets, generally and specifically Treasury securities, which had been a favorite of Asian central banks," he said, noting that China has made it clear it will veer away from the type of buying it historically has done in Treasuries.
For the week, the dollar fell 0.7% versus the euro, its fourth weekly decline. Year to date, the dollar is off nearly 3.0% against the euro.
In other markets, oil rose 3.0% for the week, ending at $72.81 per barrel. Gasoline also rose 3.0% and was 6.68 cents higher at $2.3096 per gallon.
Here Come The Earnings
The kickoff of the second-quarter earnings season is a major highlight of the coming week. The earning season officially begins Monday with results from Dow component Alcoa. Economic bellwether General Electric, the parent of CNBC, reports earnings Friday morning before the bell. According to the Q2 earnings preview by reporter Peter Kang on CNBC.com, Wall Street is looking for a paltry 4.4% growth this quarter and no doubt will be surprised on the upside.
Important data this coming week includes June retail sales Friday and wholesale trade data for May, due out on Tuesday.
An early peak at that Friday number could come in reports from chain stores, which release monthly sales for June on Thursday.
"June is expected to be a weak month for same store sales,” said CNBC retail reporter Margaret Brennan. “While the summer months are typically slow and retailers are focused on clearing out inventory with markdowns ahead of the back-to-school build, this June sales have been softer than last year for apparel companies,"
Also big on traders' watch list is a speech Tuesday by Fed Chairman Ben Bernanke. The topic is inflation and Bernanke will take questions from the audience. Santelli says he thinks Bernanke's comments will be light on news, particularly ahead of the following week's scheduled testimony before Congress on the economy.
"In light of Humphrey Hawkins, he's going to stick to the script.” Said Santelli. “He's going to say inflation should moderate even though it's still at the very top of our comfort zone. I don't think he's going to throw anything fresh out there."
Also on the speaking circuit is Fed Governor Randall Kroszner, who speaks Thursday on Basel II to the New York Bankers Association in Washington.
Wall Street Vs. Washington
Congress will come out swinging again at the hedge fund piñata when it holds a series of hearings midweek on the industry and private equity. "Basically, the focus is systemic risk. Essentially the president's working group suggested there should be no new regulations per se. I'm sure in the question and answer session there will be a lot of questions about subprime," says Melissa Lee, who covers the hedge fund and private equity worlds.
More Fun And Games
The Electronic Entertainment Expo, known as E3, takes place this coming week and CNBC tech expert Jim Goldman will be there.
"The show will be decidedly more intimate this year instead of the massive blow out it has been in year's past, but that doesn't mean the event won't be bursting with big-time gaming news," says Goldman. "With Microsoft's $1 billion warranty concession, confirming major hardware problems with its xBox 360, along with missed sales projections, the Street is fixated on Nintendo's Wii, which seems to be surging faster than anyone anticipated. We'll look at the ongoing console wars, and focus on the opportunities in the $30 billion gaming industry, which may see its best year ever."
Best Of Breed
If you are watching “Power Lunch” this coming week, you will see which states are considered the best of breed for business. CNBC's Scott Cohn will visit the top five states and reveal on Friday which state is the best, using a unique set of criteria.
Around The World
CNBC goes to Latin America this coming week. Correspondent Trish Regan will be in Columbia and report from there on investing in that hot market.