Wall Street is increasingly worried that bubbling over oil prices will scald the economy and the stock market.
That's just one concern for traders in the week ahead which also has inflation data, retail sales and housing numbers. There are earnings reports from Wal-Mart , J.C. Penney and tech giant Hewlett-Packard , and the television networks hold their upfronts for advertisers.
All during the week, the Fed will be out in force, with no fewer than 14 speeches by Fed officials. That includes two from Fed Chairman Ben Bernanke himself, on Tuesday and Thursday.
President Bush is visiting the Middle East -- Israel, Egypt and Saudi Arabia. He is expected to discuss oil prices and the idea of increased production with Saudi officials.
Shades of... Pets.com?
There was a lot of chatter this past week about the potential for a "super spike" in oil prices, after a Goldman Sachs analyst said crude could go as high as $200 per barrel within the next two years.
Lehman's weekly economic note this week looked at the idea of the "super spike" and concluded that it could happen, but if oil super spikes... it will end up spiking itself.
The note also said the ramp-up in oil prices has the feeling of a bubble building. They likened it to the Internet bubble, when suddenly the rules changed and unknown Internet stocks with no earnings were flying high. (Oil was at $126 per barrel in late trading Friday -- a gain of 8.3 percent for the week and 11.9 percent in just six sessions)
Lehman says while the global economy has withstood several oil price surges in the past five years, it's different this time. First the move is much bigger -- up $60 per barrel in a year -- while the economy is much more vulnerable.
"If oil prices were to rise by another $80 on top of the $30 rise of the past several months, the result would likely be a sharp slowdown in both global growth and energy demand," Lehman economists said in their note.
Complacent? Watch Out
Stocks entered the past week feeling pretty good, but ended on a down note. Citigroup's chief market strategist Tobias Levkovich told me in an interview this week that he's seeing signs that investors are far less fearful -- and that's not entirely a good thing.
One of his models shows investors went from being panicked two months ago to more complacent -- and the change in attitude showed up like a spike in his model.
"One of the things we're getting a little nervous about is a new found complacency," he said. "..We care far more deeply about how investors position themselves around those feelings."
Levkovich says he does not think investors are fully aware of the impact of the credit crunch and the lag effect on business activity.
"We anticipate that companies are going to have to tell people over the next couple of months that business conditions have deteriorated," he said, noting industrial companies that were doing well may start to see a fall-off.
That could bring some bumps to the stock market. "There's far more risk in the industrials/commodity complex, because they're not baking in these slower conditions," he said. Levkovich said he sees the economy in a W-pattern with two legs down and then up.
"We're probably getting to that point where we're nearing the inflection point to go down the other leg of the W," he said.
"In general, we could pull back. We don't have to pull back to levels we saw March 10 but you can't rule it out either," he said. If you follow the W, stocks would then move up again after the move down.
Levkovich said a Citi survey of clients found that investors believe corporate earnings are going to be lower this year, and that their expectations were below those of Wall Street analysts.
"When numbers get cut by sell-side analysts, stocks will have trouble rallying," he said, adding that could be around mid-year.
I asked Levkovich about oil prices, and he said while Wall Street may be fixating on big round numbers of $100, $120, $150 per barrel, the real impact is the price at the pump. He said that for now, the rise has been gradual and has been largely absorbed, but an overnight spike would be different.
"I believe that the surge we see in oil prices has eaten up a huge chunk of the rebate check benefit," he said. He said it could be significant for those who were hoping the rebate check would spur a surge in spending.
One would think, though, that the earnings power of companies and consumers is going to start taking a hit if the trend continues.
Just Friday, FedEx warned again that it was feeling the impact of rising fuel costs. It cut its quarterly earnings forecast from $1.60 to $1.80 to $1.45 to $1.50 per share. It said since it made its fourth-quarter forecast in March, it has seen a $100 million or 7 percent increase in fuel costs. FedEx says it has a dynamic fuel surcharge in place, but it cant keep up with rapidly rising fuel costs. Imagine a super-spike.
The Dow this past week was down 2.4 percent to 12,745, its worst performance since March 7. The S&P 500 pulled back 25 points or 1.8 percent for the week to 1388, and the Nasdaq was off 1.3 percent to 2445. Financials were the worst performers, down more than 6 percent, and the best performer was energy, up 2.9 percent.
The dollar lost 0.4 percent against the euro, ending three weeks of gains. It was at $1.5483 Friday, and the 10-year Treasury yield was at 3.765 percent.
Earnings this week are expected from Sprint Nextel on Monday; Wal-Mart and Electronic Arts on Tuesday; Deere , Freddie Mac , Macy's and Sony on Wednesday, and Hewlett-Packard, J.C. Penney and Kohl's on Thursday.
The coming week's data includes some important numbers: retail sales on Tuesday; CPI on Wednesday and housing starts and pending home sales Friday.
Other data includes Tuesday's NFIB small business survey at 7:30am ET. Import and export prices are also released that day, as are business inventories. On Thursday, weekly jobless claims are reported at 8:30am; the Empire State survey, the Philadelphia Fed survey, and industrial production are also released that morning. Treasury also releases data on international capital flows that day. The National Association of Home Builders survey is released Thursday afternoon. Consumer sentiment is reported at 10am ET Friday.
Fed on Parade
Every time you turn around next week, a Fed official will be beginning or ending a speech. Okay, an exaggeration -- but there are 14, and I probably omitted a few.
There are two big conferences Fed officials will be attending. One is the Atlanta Fed's financial markets conference in Sea Island, Ga., where Bernanke will speak Tuesday at 8:20am. The other is the Chicago Fed's annual conference on bank structure and competition, where Bernanke speaks Thursday at 9:30am on risk management at banking organizations.
Before and after those two speeches, we'll hear from a number of other Fed officials. On Monday, Cleveland Fed President Sandra Pianalto speaks in Paris at 4:15am (New York time) and Chicago Fed President Charles Evans speaks on the outlook at 9:15.
On Tuesday, Pianalto again speaks in Paris; Bernanke speaks in Georgia and Fed Governor Kevin Warsh moderates a panel at the Fed conference in Sea Island, Ga. Philadelphia Fed President Charles Plosser moderates a panel in Georgia at 11am.; San Francisco Fed President Janet Yellen speaks on the economy in Vancouver at 1pm; Kansas City Fed President Thomas Hoening speaks on he outlook in Oklahoma at 1pm, and Evans speaks at 8pm in Chicago.
Wednesday's speeches include Boston Fed President Eric Rosengren at a Boston Fed conference at 8:30am. Fed Governor Randall Kroszner speaks on risk management and Basel II in Boston, and Yellen speaks in Tacoma, Washington at 4:40 p.m. on an introduction to the FOMC.
On Thursday, Evans speaks at the Chicago Fed conference at 9:15am ET, then Bernanke speaks at 9:30 and Fed Governor Frederic Mishkin speaks on asset price bubbles in n Philadelphia at 7pm.