NEW YORK – If bulls get their way this week, U.S. stocks could extend the rebound that has some on Wall Street hoping the worst is over after a month-long sell-off.
But with inflation and interest-rate worries still the talk of the market, trading could again prove to be volatile.
Stocks recovered last week, with the Dow Jones industrial average posting double-digit gains both Wednesday and Thursday. The rebound was strong enough to drive the Dow and the Standard & Poor's 500 Index back into positive territory for the year.
"A lot of the near-term rate worries are already in the market, but if we see further inflationary concerns, that's your catalyst for the next market drop," said Barry Hyman, equity market strategist at EKN Financial Services Inc., in New York.
Fed fund futures have now fully priced in an interest-rate rise at the Federal Reserve's next policy meeting on June 28-29, and chances are at about 70 percent for another increase in August.
Inflation worries picked up last week when core consumer and producer price indexes exceeded expectations. But that was offset by Fed Chairman Ben Bernanke's speech on Thursday, when he said inflation expectations had "fallen back somewhat" and that the impact of high energy prices on the economy has been limited.
"I've got a sense that after the big sell-off and rebound, we're going to probably move to the upside, but it's not going to be the big fireworks we saw in the last two days," said Jon Brorson, managing director of growth equities at Neuberger Berman, an investment advisory firm in Chicago.
Stocks Mixed for the Week
For the past week, the Dow Jones industrial average rose 1.13 percent, the S&P 500 dipped .06 percent, and the Nasdaq Composite Index fell 0.24 percent.
For the year, the Dow is up 2.77 percent and the S&P 500 is up 0.26 percent, while the Nasdaq is down 3.42 percent.
Before last Tuesday, the Nasdaq was down 12 percent from its high in April, suggesting that the market was oversold.
"We could get up to 11,300 next week on the Dow and about 1,280 on the S&P. It's a playable bounce, and I think it will continue," said Marc Pado, U.S. market strategist in the San Francisco office of New York-based Cantor Fitzgerald & Co.
After a heavy schedule of Fed speakers, just one Fed official is set to talk this week: Federal Reserve Bank of Atlanta President Jack Guynn. He is giving a speech on the economic outlook in Naples, Florida, Monday.
Spotlight on Homes and Durable Goods
A relatively light economic calendar calls for a look at U.S. housing starts for May on Tuesday, followed by two reports on Thursday — weekly initial jobless claims and the May index of leading U.S. economic indicators. On Friday, May data on U.S. durable goods orders will be released.
Economists polled by Reuters forecast May housing starts will rise slightly to an annualized rate of 1.850 million units, from 1.849 million units in April. The data will be released on Tuesday at 8:30 a.m. EDT.
On Thursday, initial jobless claims for the week ended June 17, are forecast to show an increase to 310,000 from 295,000 in the previous week.
The leading indicators index is expected to decline 0.4 percent in May, after a 0.1 percent drop in April.
On Friday, U.S. durable goods orders are expected to rise 0.5 percent in May after a drop of 4.4 percent in April.
Durable goods are big-ticket manufactured items such as washing machines meant to last three years or more.
Rates, Volatility and Oil
The next big piece of news will come from the Fed's rate meeting the last week of June, analysts said.
"That's going to be the main driver here. The Fed governors have been out in full force, and everyone's listening to what they have to say," Brorson said. "We're being buffeted by their speaking and their reaction to two forces: the higher inflation data we've experienced and the opposite force is the economy," and whether it's slowing.
Volatility, a key feature of the market for weeks, will continue, and may provide some good trading opportunities, analysts said.
"There are traders looking to pick up stocks on volatility opportunities. That's what keeps the market from having severe downtrends," Hyman said.
Crude oil remains a focus for investors, with prices hovering near $70 a barrel. On Friday, concerns about crude supplies from Iran pushed U.S. crude oil for July delivery up 38 cents to settle at $69.88 a barrel. For the week, July crude was down 2.4 percent.
Iran's President Mahmoud Ahmadinejad called a proposal by the West to defuse the standoff over Tehran's nuclear work a "step forward," but gave no sign when an answer would come.
Oracle, a business software maker, reported preliminary results late last week before its official release this week. Oracle's preliminary results showed that fourth-quarter earnings before items were 29 cents per share, above a previous company forecast of 26 cents to 28 cents.
Forecasts have "been a little bit to the negative side," Brorson said. In the tech world, "outside of Oracle, tech still has some issues in terms of fundamentals and earnings."