The stock market's recently moody and wild swings should give way to a less rambunctious holiday week where traders focus on upcoming earnings and economic fundamentals.
High volatility -- and the rumors and fear that always go with it -- ruled the market this past week as investors moved money ahead of the end of the second quarter, locking in some rich first-half gains. For the week, the Dow was up 0.4%, despite a series of choppy days with 100-point moves in both directions. The Dow is up 7.6% for the year so far and was up 8.5% for the second quarter, its best quarterly showing since the end of 2003.
The Nasdaq shared the Dow's rollercoaster this week and finished up 0.6%. Year to date, it is up 7.8%. It's up 7.5% for the second quarter. The S&P 500 was up 0.05% for the week, 5.8% for the quarter and 6% year-to-date.
"The week is bracketed by very significant economic reports. The market will focus on fundamentals rather than the incestuous fear of itself that has occupied it for the last two weeks," says CNBC Senior Economic Correspondent Steve Liesman.
The big data this week is Monday's ISM manufacturing index for June and Friday's June employment report.
Tuesday is a shortened trading day, but automakers will report June sales that day, and pending home sales and factory orders are also expected. Markets close Wednesday for the Fourth of July holiday, and the usual weekly Wednesday release of oil inventories is due on Thursday.
"I think it's going to be a mixed bag of Goldilocks muddle-through -- not too hot , not too cold. The stock market will like that," says CNBC's Larry Kudlow. These rocky days, he says, have created a buying opportunity for investors looking to "buy the dips. "
By the nature of their business, traders balance a certain amount of fear with hubris when they trade the markets. This week, fear won out.
Unfounded rumors that hedge funds were imploding; that Bear Stearns has worse problems than its hedge funds; that other big brokers have problems, and that credit for mergers would dry up, all swirled in a toxic stew that kept spilling into the stock market.
Friday's up-and-down session was typical of a week that saw Bear Stearns the center of much of the market's worry. The firm Friday named respected Wall Street veteran Jeff Lane to run its asset management business. But it was also reported by CNBC's Charlie Gasparino to be under heightened scrutiny by the SEC.
"I'm afraid of these stocks," said one trader, whom we consider to be very level-headed. "It's all the credit scare."
One very real side effect of the Bear Stearns mess was a new chill over takeover-related debt issues. "I think that the corporate bond markets have to resolve this. It has to place one or two or three of the big deals, and it can't be the investment banks eating the debt," says Liesman.
Kudlow, though, thinks the worst has passed. "I think the peak of the subprime hysteria, Bear Stearns et al., is over," he said.
It all makes for just another interesting turn on Wall Street, though. The market was fretting just a week ago about Washington hurting the markets and killing the deal business with new taxes on hedge funds and private equity. Just a week later, Wall Street's biggest fear was itself.
Oil crossed over the $70 mark for the first time in a while this week, creating a new source of unease for stocks. John Kilduff, senior vice president of Man Financial, expects oil to hit a new high this summer. In a special report on CNBC.com, Kilduff, a CNBC contributor, forecast that oil could hit $83 per barrel this summer. "I expect refining issues to bedevil the market," he said.
Alcoa always kicks off the earnings season when it reports, and it is tentatively expected to release second-quarter earnings July 9, after the bell. CNBC's Bob Pisani says traders are moving their attention toward quarterly reports and are watching for warnings. The consumer discretionary stocks have already shown some signs for concern, he says, and overall earnings should show modest growth. Best Buy, Circuit City and home builders have all issued warnings.
A Ringing Success?
Apple's iPhone made it to stores this weekend, and on Monday CNBC will report how those sales went and whether users think the buzz was justified.
Around the World
President Bush meets with Russian President Vladimir Putin Sunday and Monday on the coast of Maine.
The annual running of the bulls in Pamplona starts at the end of the week. We at least know where some are if they don't show up on Wall Street this week.