US stock investors will keep a close eye on Treasury bond yields and economic reports this week as the market considers whether interest-rate hikes will go further - and last longer - than originally thought.
Attention will be paid to Thursday's consumer price index for February, which will offer clues about the inflation picture. Economists polled by Reuters see overall CPI up 0.1 percent in February, after January's gain of 0.7 percent. Core CPI, excluding food and energy costs, is expected to rise 0.2 percent, matching January's increase.
Retail sales for February, due on Tuesday, will be noted to see if there's any slowdown in consumer spending. The Reuters forecast calls for February's overall retail sales to drop 0.8 percent, after January's jump of 2.3 percent.
"Investors remain very cautious. They're holding back, waiting for the Fed," said Fred Dickson, market strategist and director of retail research for D.A. Davidson & Co "We still have buyers in the market, looking very selectively to put money to work on pullbacks."
The yield on the benchmark 10-year Treasury note climbed to 4.81 percent, its highest in nearly two years, this week as strong economic data boosted talk that the Federal Reserve has more monetary tightening in store.
The market rallied on Friday after the government reported stronger-than-expected growth of 243,000 jobs in February, which stock investors viewed as a sign that the economy can expand even as interest rates rise.
HOW HIGH WILL RATES GO? The Fed is expected to raise its benchmark fed funds rate from the current 4.5 percent to control inflation, but analysts debate how high rates will go.
"The odds of the Fed raising interest rates in the March meeting are slightly over 90 percent," said Kim Daifotis, senior vice president and chief investment officer of fixed income for Charles Schwab Investment Management in San Francisco.
In a Reuters poll taken on Friday, Wall Street's top economists were unanimous in expecting the Fed to raise benchmark rates at the March 27-28 meeting.
Most of the 22 primary dealers of government bonds surveyed also said they expect another rate increase at the May 10 policy meeting. That would bring the fed funds rate up to 5 percent from the historic low of 1.0 percent, when the tightening cycle began on June 30, 2004.
Adding to interest-rate worries in the United States, the European Central Bank raised a key rate last week by a quarter-percentage point to 2.5 percent to stem inflationary pressures from high energy prices and credit growth. That increase - the ECB's second credit tightening in three months - pushed the euro zone's key interest rate up to the highest level in nearly three years.
This week, the Bank of Japan decided to end the super-loose monetary policy it has maintained for five years. The termination of that policy is seen as the first step toward interest-rate increases in Japan.
This week's agenda will include comments by five Fed officials. Janet Yellen, the president of the Federal Reserve Bank of San Francisco, will speak on Monday and again on Wednesday. Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta, is also scheduled to speak on Wednesday. At Friday's close, the Dow Jones industrial average was up 0.5 percent for the week, while the broad Standard & Poor's 500 Index was down 0.4 percent and the Nasdaq Composite Index was down 1.8 percent.
ANXIETY ABOUT OIL AND IRAN:
Although US crude oil futures prices finished the week below $60 a barrel, Wall Street will remain cautious about energy costs because of escalating tension over Iran's nuclear plans.
Crude oil prices had risen in recent weeks, reflecting anxiety about potential supply disruptions due to Iran's dispute with Western world powers over its nuclear program, as well as violence in Nigeria's oil delta. That's another negative for stock investors since higher energy costs reduce consumer spending and corporate profits.
The UN Security Council will take Iran's case early this week after the UN nuclear watchdog sent a report this week, saying it could not verify that Iran's nuclear plans were purely peaceful.
However, US oil prices ended Friday's regular trading lower for the fifth time in six sessions, as crude stockpiles in the United States, the world's top energy consumer, are near seven-year highs. Crude for April delivery fell 51 cents to settle at $59.96 per barrel on the New York Mercantile Exchange - down 5.8 percent for the week.
WALL STREET'S SCORE CARD:
Investment banks Goldman Sachs Group Inc, Lehman Brothers Holdings Inc and Bear Stearns Co Inc will report quarterly financial results this week.
Taken together, those results amount to a financial score card for Wall Street. But the fourth-quarter earnings period is nearly at an end, with most S&P 500 companies having reported. "Companies have been reporting good earnings, but the guidance has been muted," Orlando said.
Earnings for S&P 500 companies have exceeded expectations by about 65 percent so far this reporting period, Reuters Estimates' data showed. Fourth-quarter earnings for these top companies are expected to rise 13.7 percent from a year ago, according to Reuters Estimates. That marks the 14th consecutive quarter of double-digit earnings growth for S&P 500 companies.
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