Wall Street Awaits Inflation, Housing Data

Wall Street has been reveling in the interest rate standstill of the past nine months, and investors hope this week's data on consumer inflation and the housing market won't suggest things are about to change.

The Dow Jones industrial average has been climbing to record highs, but on a tight rope. The stock market should keep advancing as long as the economy keeps growing and inflation doesn't accelerate, market experts say, but data indicating otherwise could cause a tumble.

The stock market dipped Thursday when retailers reported generally dismal April sales, a day after the Fed repeated that its main concern is not the slow economy, but high inflation. Wall Street regained its footing Friday, though, when core wholesale inflation came in flat for the second month in a row — suggesting the Fed may not need to raise rates to curb inflation, and may even lean toward a cut later in the year.

The Dow rose 0.46 percent last week, the Standard & Poor's 500 index inched up 0.02 percent, and the Nasdaq composite index slipped 0.39 percent.

But because the Fed is more focused on consumer-level inflation — and because last week's drop was hardly the big correction many analysts have been anticipating — investors will be particularly interested on Tuesday in the Labor Department's Consumer Price Index for April. The market expects the CPI to rise 0.4 percent, a smaller jump than the 0.6 percent increase in March, according to the median estimate of economists surveyed by Thomson Financial. The core index, which strips out food and energy prices, is expected to rise 0.2 percent, a bigger increase than March's 0.1 percent rise.

Investors will also examine data on the sluggish housing market to gauge the economy's health. The National Association of Home Builders on Tuesday releases its housing market index, and Wednesday, the Commerce Department reports on building permits and housing starts.

Economists predict the NAHB's April index to stay flat compared to March, April building permits to post a 1.53 million gain, a bit lower than in March; and April housing starts to rise 1.49 million, a slightly smaller gain than in the previous month.

Other Economic Data

On Monday, Dallas Fed President Richard Fisher speaks in Washington about the U.S. service sector.

The New York Fed on Tuesday releases its Empire State manufacturing survey for May. Economists predict the index to come in at 8.0, a figure that indicates quicker expansion than the 3.8 reading in April.

Also Tuesday, Kansas City Fed President Thomas Hoenig speaks in Denver about the economic outlook.

The Federal Reserve reports Wednesday on industrial production and capacity utilization. The market anticipates that industrial production rose 0.2 percent in April, an improvement on a drop of 0.2 percent in March. April's capacity utilization is expected to be 81.5 percent, little changed from 81.4 percent in March.

On Thursday, the Conference Board reports on leading economic indicators, and the Philadelphia Fed releases its monthly manufacturing survey. Economists believe the Conference Board's April index will advance 0.1 percent, the same as in March, and the Philadelphia Fed's May index will rise to 3.8, indicating stronger expansion than April's reading of 0.2.

Investors on Friday will watch for the University of Michigan's preliminary index on May consumer sentiment. They expect a reading of 87.1, the same as in April.

Earnings in the Background

With first-quarter earnings season mostly over, investors are turning their attention more to economic data. But a few big companies have the potential to shake up the market this week.

Home Depot Inc. and Wal-Mart Stores Inc., two of the 30 Dow component companies, release quarterly earnings Tuesday.

Analysts forecast a profit of 59 cents a share for Home Depot; the home goods retailer closed at $38.86 Friday, in the middle of its 52-week range of $32.85 to $42.01.

Analysts predict Wal-Mart will post a profit of 68 cents a share. The chain closed at $47.78 Friday, in the middle of its 52-week range of $42.31 to $52.15.

Another major retailer, Federated Department Stores Inc., releases its quarterly financial results Wednesday. Analysts expect profit of 20 cents a share. The operator of Macy's and Bloomingdale's closed at $41.48 Friday, in the upper half of its 52-week range of $32.57 to $46.70.

This Friday, Federated shareholders are expected to approve a name change for the company, to Macy's Inc.