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Stocks could drift higher in the coming week as the proverbial dog days of summer take hold.
The market has been dependent on the drop in commodities, particularly oil, and the strengthening dollar to move forward. The dollar gained 2.2 percent against the euro and 3 percent against the pound in the past week. Oil lost 1.2 percent, and metals and other commodities fell. Gold, for instance, slipped 8.4 percent to $786, its lowest settle since last Nov. 30.
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"We're going to see how long the strong dollar, weak commodities trade continues. I think, personally, we're going to have a snoozer" next week, said Jefferies and Co. chief strategist Art Hogan.
"The economic data calendar is not robust. I think the biggest driver in this market is going to be oil," he added.
A highlight will be Federal Reserve Chairman Ben Bernanke's speech Friday at the Kansas City Fed's annual symposium in Jackson Hole, Wyo. Otherwise, producer price inflation data and housing starts Tuesday top the economic calendar, and there are a few major retail earnings -- from Lowe's [LOW
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"I think you're going to be hard-pressed to find something other than commodities prices to move this market, unless we have some crazy merger activity, or another financial skeleton falls out of the closet," said Hogan.
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"I think the market has a path of least resistance that's higher, and I think that's dictated by the fact we see lower commodities prices and a stronger dollar. There is a limit to that trade, but I'm not sure we're close to it," he said.
BlackRock's Vice Chairman Robert Doll said in a phone interview that the stock market should do better with the stronger dollar, but he sees it in a trading range of between 1250 and 1450 on the S&P. "We're in this 0 to 2 percent real growth rate economy, and I think the market's going to frustrate the bulls and the bears," he said. (Read Bob Doll's full interview on cnbc.com.)
The Dow lost 0.6 percent in the past week, finishing at 11,659.90. The S&P 500 eked out a 0.15 percent gain to end at 1298.20. The Nasdaq, though, rode higher, finishing the week up 1.6 percent. The best performers this past week were consumer discretionary, up 2.4 percent; telecom, up 2.2 percent and consumer staples, up 1.5 percent; followed by tech, up 1 percent.
The S&P financial sector was the worst performer, down nearly 3 percent for the week, hit by analysts' downgrades of Goldman Sachs [GS
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But a wild card being watched by traders across all markets in the coming week is the Russian incursion into Georgia. So far, the oil market has shown little reaction to the more than week-long conflict, but efforts by the U.S. and others to contain it will be key. Georgia signed a cease fire agreement Friday.
Greenback's Comeback
The dollar finished the past week on an up note, as the euro floundered on a batch of weak data. Traders say the dollar's move up is more the result of worries about the slowing global economy and not necessarily an endorsement for the U.S. economy. The dollar [$$USDEUR
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The situation in Georgia began to give the dollar more traction against the Euro zone currency late in the week, as traders worried about the potential impact on Europe, which depends on the region for energy supplies.
For the foreign exchange market, "the main story is whether the Russian tanks roll back or are they going to roll forward? That's the bigger story than any economic news we have on the docket. Most of the economic news is third-tier, and a lot of the large players are off their desks," said Boris Schlossberg, director of currency research at GFT Forex.
"If the situation does not resolve itself...you could see the euro push all the way to $1.45...$1.45 is one of the key levels. Once it gets close to this level, it gets very tempting for speculators to run the stops," he said.
Hogan said the market and investors so far are not focused on the big picture regarding Georgia: "The larger implication is we might be moving into a new era, a second cold war. That could cripple globalization. There's an interdependency of everybody in the globe that didn't exist 20 years ago...This is a lot trickier than a lot of things we've had to deal with over the last couple years," Hogan said.
Drilling Oil
Oil prices continued to slump in the past week, finishing down 1.2 percent at $113.77 per barrel. Crude is down 9.1 percent over the past two weeks and is off 22 percent from its high reached on July 3.
MF Global's Michael Fitzpatrick said crude could find support at $110.30 per barrel next week, and that it is becoming oversold. "I think it's in a consolidation, and it's going to move higher next week," he said.
Traders in the energy markets are on high alert for possible storm activity. Late in the week, traders were watching Tropical Storm Fay in the event it turns into a hurricane or heads into the Gulf of Mexico.
Econorama
Inflation and housing data are the big items to watch in the coming week. The July Producer Price Index is reported Tuesday at 8:30am ET and is expected to rise 0.4 percent, or 8.9 percent year over year, according to Lehman Brothers. Lehman expects core PPI to rise 0.2 percent. The National Association of Home Builders survey is reported Monday, while housing starts for July are expected Tuesday at 8:30am.
Other data includes Thursday's weekly jobless claims data at 8:30am ET. The Philadelphia Fed survey and leading indicators are both reported at 10am that day.
This year's topic at the big two-day Kansas City Fed symposium is "Maintaining Stability in a Changing Financial System."
That meeting starts Friday and should provide some insight into the Fed's thinking on the economy and markets. Besides Bernanke's speech at that forum Friday morning, Dallas Fed President Richard Fisher is speaking in Aspen Tuesday. His topic is monetary policy in a technology driven world.
Worth Watching
On Friday, Warren Buffett will be a special guest on "Squawk Box," the day after his big-screen debut Thursday in the docudrama, "I.O.U.S.A." The movie was funded by the Pete Peterson Foundation and is intended as an eduational, wake-up call about the U.S. budget deficit. Besides the Berkshire Hathaway [BRK
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Earnings Central
On Monday, home improvement retailer Lowe's reports earnings, and its rival, Home Depot reports Tuesday. Dow component Hewlett-Packard reports earnings Tuesday, as does Saks and Target. The Limited and Suntech Power report Wednesday, and the Gap, Heinz and Gamestop report Thursday. Ann Taylor reports Friday.
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