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 The Standard & Poor's 500 <.SPX> has risen 3 percent over the past
three weeks, as investors have largely been willing to forgive a
flurry of soft economic data due to harsh winter weather.
The main focus will be Part Two of Federal Reserve Chair Janet
Yellen's semi-annual monetary policy testimony before the Senate
Banking Committee on Thursday.
Ironically, Yellen's congressional testimony before U.S. lawmakers
was rescheduled after a Senate panel previously canceled the
original hearing date due to a recent snowstorm in Washington, D.C.
Yelena Shulyatyeva, an economist at BNP Paribas in New York, said
investors and economists will pay attention to Yellen's answers on
"questions about the weather, how much does she think the weather is
impacting economic activity and how much will (the Fed) pay
attention to that."
Market participants will also monitor Yellen's statements for any
signs regarding the central bank's plans as it tapers its stimulus
measures. As the U.S. unemployment rate nears the Fed's 6.5 percent
target, the debate has grown over whether interest rates should be
raised.
St. Louis Federal Reserve Bank President James Bullard said on
Friday that the U.S. economy is headed for a good year of growth,
and he expects the central bank to continue to pare its massive
bond-buying stimulus.
THE CONSUMER CONFIDENCE GAME
Next week's economic calendar includes consumer confidence, new home
sales and several other reports on the housing market, durable goods
orders, the preliminary data on gross domestic product and the final
February reading on consumer sentiment from Thomson Reuters and the
University of Michigan.<ECONUS>
While the housing data is likely to be discounted as a result of
weather issues, the consumer confidence data may still provide
insight to investors as to whether economic growth remains on track.
"If you look at consumer confidence, looking past the weather cycle
of indicators, we find the economic outlook of consumers has not
changed materially despite all the other indicators that may suggest
otherwise," said Anastasia Amoroso, global market strategist at J.P.
Morgan Funds in New York.
"So if consumer confidence comes in as the preliminary reading did,
that suggests the end-user demand for goods and services did not
fall off a cliff, but rather has been deferred due to weather."
Earnings season will also wind down, with retailers in focus as the
weather has added to the sector's many other challenges.
Retail earnings set for release next week include Home Depot Inc <HD.N>,
Lowe's Companies Inc <LOW.N>, Target Corp <TGT.N>, Macy's Inc <M.N>,
TJX Companies <TJX.N>, JC Penney Company Inc <JCP.N>, Best Buy Co
Inc <BBY.N> and Gap Inc <GPS.N>.
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Of the 441 companies in the S&P 500 that had reported earnings
through Friday, 65.3 percent have reported earnings above analysts'
expectations, slightly below the 67 percent rate for the past four
quarters, but above the 63 percent average since 1994.
RESISTANCE, GDP AND POLITICS
Even if the data falls short of expectations and is downplayed once
again by investors, a lack of catalysts may prevent the benchmark
S&P 500 from convincingly breaking its all-time intraday high of
1,850.84 set on January 15. That level has acted as resistance.
"1,850 seems to be a level where enough natural selling comes out
and it doesn't have the 'oomph' to take it up and through, and every
time that happens, it seems to back off a little bit," said Ken
Polcari, director of the NYSE floor division at O'Neil Securities in
New York.
"If the market breaks down, (investors) are happy to jump in and
support. But if the market tries to break out, there are plenty of
people willing to take a little off the table because they are still
looking for the market over the next couple of months to be volatile
to the downside."
One potential hurdle to continued gains will come the day after
Yellen's testimony with a preliminary reading on gross domestic
product. The data is expected to show growth of 2.5 percent, down
from a previous reading of 3.2 percent.
"The GDP revisions, that will be big," said Jeffrey Cleveland, chief
economist at Payden & Rygel in Los Angeles.
"You could argue that some of that is priced in, or a lot of it is
priced in, but the sticker shock will be interesting, especially
given the first quarter is tracking below the fourth quarter."
All told, the stock market could also be roiled again by political
turmoil as investors monitor unrest in Venezuela and Ukraine. While
those countries represent a small portion of the global economy,
further deterioration could dent sentiment.
(Reporting by Chuck Mikolajczak;
additional reporting by Caroline Valetkevitch and Luciana Lopez;
editing by Jan Paschal)
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