US stock investors will brace for further signs of weakness in the US recovery next week as earnings from key retailers are expected. Industrial production, housing and inflation data will come under scrutiny as well, just as stocks wrapped up their worst week in six. This week's sell-off also drove stocks back into negative territory for the year.
Technical charts show "sell" signals, indicating more weakness. At the same time, some analysts say the market may be due for a bounce. Wal-Mart Stores is expected to announce results along with top tech names such as Hewlett-Packard, which came into the spotlight this week after its CEO's resignation late last Friday.
So far this earnings period, some 75 percent of results from Standard & Poor's 500 companies have beaten earnings estimates, according to Thomson Reuters estimates, offsetting a batch of economic reports that pointed to a slowdown in the recovery.
But for retailers, which typically round out the earnings period, results have been less optimistic. If forecasts from J.C. Penney Co Inc and others are any indication, reports next week could confirm concern about a weaker outlook for the sector.
"The tone among retailers has changed somewhat, and the outlook now looks somewhat less upbeat than it did earlier this year in the retail space," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
"We're likely to hear more about somewhat sluggish consumer spending."
On Friday, J.C. Penney forecast a profit for the year below Wall Street's expectations and said its customers were vulnerable to weak economic conditions, a day after department stores Kohl's Corp and Nordstrom's gave conservative profit outlooks.
The Federal Reserve also gave a bleaker outlook on the economy this week. Technology shares led losses, with the Nasdaq ending the week down 5 percent, while the Dow was down 3.3 percent and the S&P 500 was down 3.8 percent. An index of semiconductors fell more than 4 percent on Wednesday ahead of results from Cisco, while the index broke through the lower end of its trading range on Thursday following Cisco's weak revenue forecast.
On Friday, the SOX ended down 0.9 percent. The SOX will be watched closely next week when Dow component and technology bellwether Hewlett-Packard reports results.
Hewlett-Packard, whose chief executive resigned following an investigation into sexual harassment charges brought by a female contractor, is due to report earnings on Thursday.
Charts show short-term momentum turned negative this week. The S&P 500 closed below its 14-, 50- and 200-day moving averages and the moving average convergence-divergence generated a "sell" signal.
The negative slopes on the 14- and 50- day moving average also indicate weakness.
The Relative Strength Index, or RSI, and the Bollinger Bands show the S&P 500 has not reached oversold levels, and support for the index is seen around the 1,060-1,057 area, with 1,060 as the 23.6 percent retracement of the 2010 high-to-low slide between April and July, and 1,057 the low in a mid-July pullback.
Still, some analysts say stocks may be ripe for a bounce next week following the recent weakness.
"I think the tone is negative, but I think the market is trying to go higher," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.
"The (Federal Reserve) meeting is out of the way, and some disappointing economic numbers, and I think that all spells a higher market next week," he said.
The S&P 500 ended Friday's session down 0.4 percent, but traded near flat for much of the day.
The overall sentiment in the options market was slightly bearish but the CBOE Volatility index, Wall Street's favourite barometer of fear, suggested investors shouldn't be too worried for now.
August VIX futures that expire next Wednesday were trading just a tick above the VIX, which rose 2 percent on Friday to close at 26.24.
"Considering that these are futures that expire in 3 1/2 trading days, the market is not bracing for anything too volatile for next week at least," said Randy Frederick, director of trading and derivatives at the Schwab Centre for Financial Research in Austin, Texas.
Industrial production data is due on Tuesday, along with housing starts and the government's Producer Price Index report.
On Friday, data showed the overall US Consumer Price Index rose 0.3 percent in July. It followed some concern about deflation expressed by the Fed earlier this week.
"Given the sensitivity to the Fed statement earlier this week, all of those items (next week) will probably get a little more scrutiny than normal," said Fred Dickson, chief market strategist of The Davidson Cos. in Lake Oswego, Oregon.
But the long list of retailers slated to report next week should attract plenty of attention as well, especially given that parents and students are preparing for the start of another school year in the next few weeks. School is already in session in some states, while it will resume in other states after the Labour Day weekend.
Besides Wal-Mart and HP, results are expected from Target Corp, Urban Outfitters, Abercrombie & Fitch Co, The TJX Co, Limited Brands, Gap, Sears Holdings Corp and Staples.
Home improvement chains Home Depot and Lowe's Co also are due to report, along with Intuit.