The markets head into the final week of the first half after a week defined by turbulence but capped by a highly successful IPO. This coming week, Apple rings in its new hot phone and the Street watches the Fed.
Private-equity firm Blackstone Group's big offering made it out of the gate Friday after dodging shots from Washington legislators looking to find new tax sources in the canyons of Wall Street and wide avenues of midtown Manahattan. The offering priced at the top of the target range and closed 13% higher on its first day.
Choppiness could be a highlight of the market this coming week as some investors lock in profits to secure first half gains and also begin to consider the second quarter's earnings reports due out in several weeks. The Dow lost 2% or 279 points this past week, but is up 7.2% year-to-date. The Nasdaq tumbled 1.4% for the week and the S&P lost nearly 2%. Nasdaq is up 7.2% for the year so far, and the S&P is up 5.9%.
Oil rose nearly 1% for the week to $69.14. Its creep up is being watched closely by stock traders.
The trouble at two Bear Stearns hedge funds added some drama to credit markets this past week as lenders moved to seize assets. It also sparked fear across the stock market as investors worried financial firms would have to eat losses on mortgage bonds. A corresponding rise in Treasury yields also spilled into stocks. By the end of the week, Bear moved to rescue one of the funds and worked to assure investors the problems were contained.
CNBC's Larry Kudlow says he thinks Bear Stearns' problems will not spread. "Bear made two bad bets," he said.
More fear on Wall Street came straight from Washington last week and by Friday, it was creeping into the stock market. First it was senators who talked about taxing private equity at corporate rates. Then Friday, House Democrats proposed a tax plan that could directly impact private equity and hedge fund managers. "It's all about the assault on prosperity," Kudlow says, adding it puts a new level of uncertainty into the markets.
The big event this coming week is the two-day Federal Open Market Committee meeting Wednesday and Thursday. Analysts do not expect any action on rates but as ever, they are watching the Fed's statement to see if there's any modification.
"I really think we're going to get very little in terms of the statement. I don't think they're going to change much. I think they will give continued lip service to inflation moderating. I think they might give just a bit of a tweak to their assessment of the economy. It looks like the manufacturing numbers, since the last meeting, were a little spunky. I think they'll upgrade growth modestly...but they'll downrade inflation. They'll talk about energy prices because because they're back up," says CNBC's Rick Santelli.
Santelli says if you look at Fed funds futures, traders aren't betting big on any kind of rate change soon. "I think they're pricing neutrality even though they have a slight easing bias toward the end of the year," he said.
Housing data is high on the agenda next week.CNBC's resident real estate expert, Diana Olick, said she does not expect to see a bump up in May housing data. Existing home sales are reported Monday and new home sales are released Tuesday. "Prices are coming down but they're not coming down far enough...Home builder sentiment last week was down to the lowest level since 1991 and that was the first Gulf War," says Olick. "I would not expect to see a bump, and we are now heading into the proverbial dead season. July and August are pretty much the worst time to sell a home."
Other data includes consumer confidence and the Richmond Fed Survey Tuesday, durable goods Wednesday and final Q1 GDP and jobless claims Thursday. On Friday, personal income, construction spending, Chicago purchasing managers and consumer sentiment are reported.
The long-anticipated Apple iPhone will be released by Apple and AT&T with much fanfare Friday evening. Phone shortages and mobs are expected. CNBC all week will look at the winners and losers this game-changing phone is creating in the wireless and handheld business.
"For Apple, first there was Mac, the iPod, now iPhone, and arguably this is bigger than both," says CNBC Silicon Valley Bureau Chief Jim Goldman. Goldman says that Piper Jaffray expects iPhone will be $15 billion in Apple revenue by 2009 and could sell 45 million units that year. At the same time, Apple will do about $13 billion in Mac sales in 2009. "So, less than two years on the market and it could eclipse Apple's legacy business. That's amazing. Even iPod didn't grow that fast," says Goldman.
But iPhone isn't without its pitfalls, he says. "Consumers will have to learn an unfamiliar touch-screen, they'll have to remember to re-charge every night because there's no removable battery, and it's going to be expensive," he said. Estimated monthly fees could be more than $110 on top of a phone that costs $599. "Nobody argues this thing is going to be huge. How huge is the multi billion dollar question."
After a slow couple of weeks, earnings news is picking up this coming week. Walgreen reports earnings Monday. Kroger,Lennar and Stride Rite report Tuesday morning and Nike and Oracle report that day after the bell. Wednesday's reports include Conagra,Bed Bath andBeyond, and Paychex. On Thursday, Monsanto, KB Home, General Mills and Research inMotion report.