joe buttipluglia says 'its rally time!'
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Data could spur a stock breakout
But Iraq and rising oil prices could spoil the party
By Mark Cotton, CBS.MarketWatch.com
Last Update: 4:26 AM ET May 22, 2004
NEW YORK (CBS.MW) -- A heavy week for economic data could set the stage for a rally in U.S. stocks, barring any damaging news out of Iraq or a further upward spike in crude oil prices.
Joe Battipaglia, chief investment officer at Ryan, Beck & Co., said the stock market is "at the lower end of a trading range," from which it can rebound.
"We can lift off from here, perhaps rallying 3 to 5 percent over the next couple of months," said Battipaglia.
In the last two weeks, the Dow Jones Industrial Average has been unable to break out of a relatively narrow 200-point range as concern over the prospect of higher interest rates, rising oil prices and the damaging headlines out of Iraq plagued the markets.
But Battipaglia said investors now "fully expect rates to rise and are becoming comfortable with that notion." If oil prices had not become an issue, the market could "potentially" have begun to rally as early as this week.
"If we can see oil prices begin to abate, with the economic data next week confirming expansion of the economy, that will be enough to rally on."
CIBC World Markets economist Avery Shenfeld was more guarded about the impact of the data on equities.
"We don't expect economic data to have much sway on markets until the next round of payrolls and CPI reports in June," said Shenfeld in his note on the week ahead.
On Friday, the Dow Jones Industrial Average ($INDU: news, chart, profile) was up 29.10 points, or 0.3 percent, at 9,966.74, ending 0.5 percent lower on the week.
The Nasdaq Composite ($COMPQ: news, chart, profile) rose 15.50 points, or 0.8 percent, to 1,912.09. In the last week, the tech-rich index gained 0.4 percent.
The S&P 500 index ($SPX: news, chart, profile) was up 4.40 points, or 0.4 percent, to 1,093.59, posting a 0.2 percent decline on the week.
Economic data
The first key economic report for investors next week will be the May consumer confidence report from the Conference Board due out on Tuesday.
The report is expected to show an uptick in consumer confidence from the previous month. Economists polled by CBS MarketWatch are forecasting a reading of 93.1 compared with 92.9 in April.
Battipaglia said Wednesday's durable goods report is likely to show a dip in orders for April but only because the March report was so strong.
April durable goods orders are forecast to slip 0.3 percent compared with a 5 percent jump in March, according to analysts polled by CBS MarketWatch.
Further evidence of the robust health of the U.S. economy is likely to come from a fresh estimate of first quarter GDP growth. At the end of April, the Commerce Department said the U.S. economy grew at a 4.2 percent seasonally adjusted annual rate in the first three months of the year, the third straight quarter of strong growth.
The average estimate of analysts polled by CBS MarketWatch is for Thursday's GDP reading to show the U.S. economy growing at a 4.3 percent clip in the first quarter, up a tenth of a percent from the April estimate.
Investors will be hoping the May reading of the Chicago Purchasing Managers' Index, which tracks manufacturing activity in the Chicago area, supplies further evidence that the economy is continuing to expand. The data are due on Friday.
"We're hoping it comes in well above 62, which would reinforce the notion that the economy does have durability," said Battipaglia.
Economists polled by CBS MarketWatch are forecasting a reading of 62.9 percent compared with 67 in the prior month. Any reading above 50 signifies business expansion.
A final rallying catalyst for stocks could be Friday's consumer spending figures for April. Investors will be seeking reassurance that the consumer has in no way curbed his spending habits.
The forecast is for spending to rise 0.3 percent in April compared with a 0.4 percent rise in March, according to analysts polled by CBS MarketWatch.
Other data of interest to investors will be reports on new and existing home sales for April and the final reading of the University of Michigan's consumer sentiment index for May.
Food for thought
With the first quarter earnings season coming to an end, investors will only have a smattering of earnings to digest.
Krispy Kreme's (KKD: news, chart, profile) first-quarter results, however, may prove difficult.
At the beginning of May, the doughnut maker warned its fiscal first-quarter and 2005 earnings would miss expectations, as sales of packaged doughnuts to grocery stores have been hurt by increased consumer interest in low-carbohydrate diets.
Krispy Kreme said it now expects earnings excluding special items of 23 cents for its quarter ending April.
The company is also facing at least five class-action lawsuits charging that it misled investors about its earnings potential.
Campbell Soup (CPB: news, chart, profile) reports its fiscal third-quarter results on Monday. The Thomson First Call average estimate is for earnings of 32 cents on revenue of $1.63 billion.
For H.J. Heinz (HNZ: news, chart, profile), fiscal fourth-quarter earnings Tuesday are expected to get a boost from a strong euro, according to Deutsche Bank analyst David Nelson.
Nelson said 90 percent of the company's earnings growth has come from currency benefits due in large part to the fact that 40 percent of the company's sales are made in Europe.
Nelson is expecting earnings of 59 cents a share, up 14 percent from the prior year, and at the high end of the company's own forecast of earnings in a range of 57 to 59 cents a share.
The analyst said 2004 will mark the first year since 1999 that Heinz has met its commitment of earnings per share growth of between 8 and 10 percent.
Nelson said the big question on investors' minds will be whether the company abandons this commitment.
Costco Wholesale (COST: news, chart, profile) also reports its fiscal third quarter results on Thursday.
In a note to clients, J.P. Morgan analyst Shari Eberts said he is forecasting earnings to rise 9.7 percent to 36 cents a shares, in the middle of the company's own range of 35 to 37 cents a share, but 2 cents below consensus.
Eberts said earnings could be his estimate if "rising gas prices prove less detrimental to the gross margin than we assume."
Mark Cotton is a markets reporter for CBS.MarketWatch.com
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