Wall St. to Focus on Katrina's Impact

Investors will get a look at economic data in the upcoming holiday-shortened week that could begin to shed light on Hurricane Katrina's (search) impact as the stock market grapples with rising gasoline prices and interest rates.

The weekly data on store sales, unemployment claims and oil inventories — which usually are not big market movers — will take on added weight as the first signs of how the economy fared after what some say may be the largest insured loss in U.S. history.

Katrina triggered an energy crunch this week that sent gasoline prices well above $3 a gallon and set off flooding that devastated New Orleans, contributing to losses that one risk modeler estimated could cost the economy more than $100 billion.

The storm's impact on the economy and signs of slowing growth raised hopes on Wall Street the Federal Reserve may pause in its campaign of raising interest rates.

"The two likely things influencing the market next week is the direction of energy prices and the impression that the Fed is going to stop raising rates," said Joe Liro, market strategist at Stone & McCarthy Research Associates.

Wall Street economists say there is a chance the Fed could temporarily halt its rate hikes, which are considered a negative for stocks as they increase borrowing costs for companies and consumers.

The Fed will be closely watching how long the disruption to gasoline prices lasts, but it will not have a full month's data since Katrina hit the Gulf Coast on Monday by the time of its next policy meeting on Sept. 20 to assess the economic fallout.

Despite moderate losses on Friday, stocks ended the week higher. The Dow Jones industrial average (search) ended up 0.5 percent at 10,447, the Nasdaq Composite index (search) rose 1 percent to 2,141 and the Standard & Poor's 500 Index (search) gained 1.1 percent to 1,218.

U.S. crude oil and gasoline futures plummeted on Friday after the International Energy Agency prepared to tap up to 2 million barrels per day of emergency reserves to ease the U.S. energy crunch.

October gasoline settled down 22.53 cents at $2.1837 per gallon on the New York Mercantile Exchange. Crude for October delivery settled down $1.90 at $67.57 a barrel.

But in Katrina's wake oil climbed near $71 a barrel, and high oil prices not only increase energy costs for corporations, they also hurt consumer spending on discretionary items.

"It is a well known fact that the net effect of hurricanes is neutral, as the slack in the consumer sector is offset by an uptick in earnings of energy companies and construction companies," said Som Dasgupta, head of equities trading at PNC Corporate Bank. "But this time around, I don't think it will be that neutral. The consumer sector is going to suffer quite a bit."

While energy companies and companies involved in the reconstruction or relief efforts are expected to gain following the onslaught of Katrina, many retailers, casinos, insurers and airlines could suffer.

"The investor will be sensitive to any signs that the sharp spike in energy prices is going to derail the consumer sector, the overall economy and corporate profit growth in the fourth quarter," Liro said.

Investors will scour weekly U.S. chain store sales data on Tuesday. U.S. financial markets will be closed on Monday to observe the Labor Day holiday.

Weekly oil inventory data is scheduled for release on Wednesday and jobless claims data for the week ending Sept. 3 are due on Thursday.