Earnings, Consumer Sentiment to Take Wall Street Spotlight

Stock investors will look to earnings reports from retailers Federated Department Stores Inc. (FD) and Target Corp. (TGT) this week as well as new soundings on consumer sentiment as they to try to get a handle on the state of the U.S. economy.

The consumer sentiment data is just one piece of the puzzle in a week that is heavy with economic indicators.

The Conference Board's Consumer Confidence Index for February is due Tuesday. A Reuters survey has economists forecasting a reading of 108.9, down a bit from 110.3 in January.

On Friday, an update of the Reuters/University of Michigan Surveys of Consumers for February will be released. A preliminary report showed a decline from January. The forecast for February's final reading: 93.5 versus 96.9 in January.

"It might be interesting to compare the retail earnings and the consumer surveys," said Dan Bandi, chief investment officer for Integrity Asset Management in Independence, Ohio.

While the retail earnings give a "backward look" at the economy, the consumer sentiment readings are more "real time," he said.

Retailers Federated and Target will report earnings Tuesday, while quarterly results from Gap Inc. and Kohl's Corp. are due Thursday.

Consumers and CEOs alike will stay tuned to the price of oil this week after it hit a high for the year following Iran's defiance of a United Nations deadline to stop uranium enrichment. That process can be used to make fuel for nuclear power plants — or to make material for atomic bombs.

On Friday, crude oil for April delivery settled at $61.14 a barrel on the New York Mercantile Exchange, the highest NYMEX closing price since late December.

Gold prices climbed to a nine-month high Friday, getting closer to $700 an ounce, on concerns about the West's tensions with Iran and the war in Iraq.

Getting a Handle on Housing

Wall Street's antennae will be finely tuned for Tuesday's data on U.S. existing home sales and Wednesday's report on new home sales, both for January. The mood of consumers and their ability to take on debt play a major role in home sales.

"One of the dark clouds for the stock market has been the housing industry," said Art Nunes, portfolio manager and market strategist for Portland, Oregon-based IMS Capital Management.

But Nunes believes a recovery in housing is already under way, with the median price of homes sold actually rising a bit.

Worries about rising defaults on subprime mortgages, which are home loans to customers with weaker credit histories, shook the U.S. stock market on Friday.

For the week, the blue-chip Dow Jones industrial average lost 0.9 percent and the broad Standard & Poor's 500 index declined 0.3 percent.

Bucking the trend was the Nasdaq Composite Index , which finished the week up 0.8 percent, reflecting strength in semiconductor stocks due to some good earnings and positive brokerage comments.

Tuesday's menu of data includes durable goods orders for January. Durable goods orders also have a strong connection to consumers' willingness to spend because these products include refrigerators, washing machines and other big-ticket items meant to last three years or more. The consensus forecast is for a 2.5 percent drop in overall durable goods orders. But the expected decline is only 0.2 percent when the transportation sector is excluded.

Another look at fourth-quarter gross domestic product is due Wednesday. GDP is the output of all goods and services within U.S. borders. With consumer spending driving much of the U.S. economy, there is a strong connection between GDP growth and whether consumers are still in the mood to buy. The consensus forecast is for the revised fourth-quarter GDP data to show annual growth of 2.4 percent. An earlier report put the annual rate at 3.5 percent.

Within the GDP report is the core personal consumption expenditures price index, or the core PCE price index. Forecast: Up 2.1 percent, steady with the previous reading.

Another closely watched piece of economic data this week will be the Chicago Purchasing Managers Index on Wednesday and the Institute for Supply Management's survey of February manufacturing activity on Thursday. The ISM report is expected to show a reading of 50.0, up from 49.3 a month earlier.

Personal income and spending data is also due Thursday.

Incomes are expected to rise 0.3 percent in January, compared with a 0.5 percent increase in December. That data includes a core PCE price index, forecast at up 0.2 percent in January, compared with a gain of 0.1 percent in December.

With autos also in a slump, domestic car and truck sales for February will get attention. The automakers will be reporting their February figures throughout the day on Thursday.

Please Pass the Ketchup

Among others reporting earnings this week will be H.J. Heinz Co. , known for its ketchup, steak sauce and other food businesses that range from Weight Watchers meals to frozen snacks from restaurant chain T.G.I. Friday's menu.

Dell Inc , the world's second-largest personal computer maker, as well as American International Group Inc. , the world's largest insurer, and broadcaster CBS Corp. also will report quarterly results this week.

Reuters Estimates data on fourth-quarter earnings through Feb. 16 shows earnings for Standard & Poor's 500 companies were up 10.7 percent from a year earlier. The data includes reported earnings and estimates for companies yet to report.

Strong earnings helped drive the three major U.S. stock indexes to new highs early in the week. The Dow ended at a record close earlier last week, while the Nasdaq hit a six-year high.

But a stronger-than-expected reading last week on the U.S. Consumer Price Index for January stirred worries that an interest-rate cut is not in the works any time soon. That prompted enough selling to erode most of the earlier gains.

Still, there are many who think the stock market has built up a big enough head of steam that further gains are likely.

"There's too much momentum to have a pullback in the near term," Bandi said. "My guess is that stocks stay pretty strong through the end of the quarter."

Steve Goldman, market strategist at Weeden & Co. in Greenwich, Connecticut, said he believes "the market's underpinnings are still in pretty good shape, so it should provide support for stock prices at any modest setback.

"Stocks probably will be supported, but it's tougher when you're at new highs to get excited at these levels."