Stocks Momentum Could Bring Record Highs

Next week's menu of U.S. economic statistics is not expected to pose any great challenges for U.S. stocks, suggesting that momentum can carry market indexes to still more record highs.

The week starts with a report on April U.S. factory orders on Monday. The consensus estimate is for an increase of 0.7 percent, which would be well off the March pace of 3.1 percent. The March increase was the biggest in a year and sharply exceeded expectations.

Tuesday brings a report from the Institute for Supply Management on May activity in the service sector of the economy. The median forecast calls for the services index to decline to 55.3 in May from 56.0 in April.

Other reports scheduled during the week include a private report on layoffs, a measure of productivity, consumer credit and international trade.

The big retail chains are set to release May sales figures on Thursday.

"Absent any exogenous shocks, it seems like the market is still going to march higher," said Brandon Thomas, chief investment officer at Envestnet Asset Management in Chicago. "There isn't anything (in the coming week's data) that would heavily impact the market in my opinion."

Thomas believes the U.S. economy is reasonably healthy, inflation is benign and corporate profitability is good, a combination that suggests the Fed will continue to leave interest rates where they are.

Bond prices fell sharply on Friday after a much better-than expected May payrolls report that 157,000 jobs were created in the month. The data convinced many there would be no U.S. interest-rate cut this year.

The yield on the benchmark 10-year note climbed close to 5 percent on Friday. It reached 4.96 percent, the highest level in 9-1/2 months, on the strong jobs and ISM manufacturing data. Bond prices and yields move inversely.

Minding the Trade Gap

One report next week that could have some impact is the trade gap for April, due Friday. The April deficit in trade is estimated at $63.5 billion, little changed from $63.9 billion in March. The March trade gap was 10.4 percent greater than February's, and bigger than expected. Oil prices got much of the blame.

Wayne Wicker, chief investment officer for the Vantage Funds in Washington, D.C., said that he will be paying close attention next week to policy meetings of the European Central Bank and the Bank of England.

The ECB is expected to raise rates to 4 percent Wednesday, while the Bank of England is likely to announce on Thursday that it will keep rates unchanged at 5.5 percent.

Wicker said U.S.-based multinational corporations have been beneficiaries of stronger growth overseas, so any sign the pace is continuing is a positive factor.

The dollar, which has been gaining on the euro for five weeks, got a further boost on Friday after the May payrolls number.

Better-than-expected profits, along with a wave of buyout activity, have been driving the U.S. stock market to record levels this spring.

For the week, the Dow Jones industrial average gained 1.19 percent, the broad Standard & Poor's 500 index

advanced 1.36 percent, and the Nasdaq Composite Index

climbed 2.22 percent.

For the year so far, the Dow is up 9.67 percent, the S&P 500 is up 8.32 percent and the Nasdaq is up 8.22 percent.

Some Competition for Stocks

Paul Nolte, director of investments at Hinsdale Associates in Hinsdale Illinois, said it wouldn't be a surprise to see more buyout deals announced Monday.

"The interesting thing is what's happening to the fixed- income market," Nolte said. "We're getting close to a 5 percent yield on the 10-year bond, which will provide some stronger competition for equity returns."

But for now, equity investors seem to be in a "don't worry, be happy" frame of mind, Nolte said.

The calendar of quarterly earnings reports is quite small in the new week, with wine and spirits company Brown-Forman Corp. due to report Tuesday. Among other reports, communications equipment maker ADC Telecommunications Inc.

releases financial results Wednesday and the quarterly scorecard from National Semiconductor Corp. is due Thursday.