US stocks seen treading water this week amid raft of economic data, Fed meet

NEW YORK (AFX) - US stocks are expected to tread water this week as investors wade through a raft of economic releases and wait out a Federal Reserve meeting, at which policymakers are widely expected to raise interest rates by another quarter point, analysts said.
Among the corporate highlights, Goldman Sachs and Lehman Brothers will unveil the first fiscal fourth-quarter earnings from big brokerages. Software giant Oracle Corp, which is still embroiled in a takeover battle with PeopleSoft, will report its fiscal second-quarter earnings.
But it is the FOMC meeting that will take center stage, and with a 25 basis point hike already "baked in the cake," investors will firmly focus on the wording of the Fed's accompanying statement for any hint at what its next move might be, said Joe Keating, chief investment officer at AmSouth Asset Management Group.
Data reported in the last week have done more to obscure than to clear the economic outlook, with disappointments like November's weaker-than-expected jobs report weighing against a surprisingly strong consumer sentiment reading for December.
Inflation has remained a fear, stoked by continued high crude prices -- although oil underwent a correction in the latest week-- and a weak dollar, which also clawed its way higher in the past week.
An unexpectedly high reading for November producer prices weighed on stocks Friday. The Labor Department reported that the producer price index rose by 0.5 pct, well ahead of the 0.1 pct rise forecast by economists surveyed by CBS MarketWatch.
Core producer prices, which exclude volatility food and energy prices, rose 0.2 pct, in line with economist expectations.
Investors will closely watch the release of consumer price data this Friday, to see whether higher prices at the wholesale level are beginning to translate into higher prices for consumers -- a scenario the Fed has pledged to act on.
"The key issue is whether or not the Fed will pause at some point," said Keating. "People are trying to work out whether the Fed might "overdo" their effort to raise short-term rates. There's a wide range of opinions on what exactly a 'neutral' fed funds rate is, so that it neither impeaches nor stimulates growth."
The major indexes closed a choppy week lower as investors ignored the retreat in oil prices and the dollar to lock in some of November's sharp gains.
The Dow Jones Industrial Average ended last week at 10,543, down 0.5 pct from a week ago.
The Nasdaq Composite lost 0.9 pct on the week to finish at 2,128, and the S&P 500 shed 0.3 pct for the week to close out at 1,188.
Strategists are divided on where the market is heading as the year end approaches.
Joe Battipaglia, chief investment officer at Ryan Beck, believes the "Santa rally" is already over, although he is bullish for stocks heading into 2005.
"Santa is coming earlier and earlier each year, and this year we got him in November after the election," he said. "At this point, we'll wait to see the new year, see what oil, the dollar, gold prices do; there's a lot of factors keeping stocks under wraps and a lack of real news drivers to push us one way or another," he said.
At Barrington Research, strategist Alexander Paris believes that while the market is showing signs of a shift in sentiment, the trend is still positive.
Paris argues that this week's correction, accompanied by a pullback in commodity prices, is a healthy trend, coming after a strong market advance from its mid-August lows.
"The stock market may be a little overbought in the short term but the upturn that began in mid-August is likely still intact," he said.
Strength in their fixed-income businesses is expected to boost fourth-quarter earnings at Goldman Sachs and Lehman Brothers and set the tone for the rest of the sector this week.
Lehman is expected Wednesday to report earnings of 1.70 usd a share, down from 1.71 usd in the same period last year, according to analysts polled by Thomson First Call.
Growth in mergers and acquisition -- with higher fees for advice and asset management -- are expected to offset a decline in fixed-income trading, analysts said.
Goldman is expected Thursday to report earnings of 2.32 usd a share, up 22 pct from a year ago. Analysts are forecasting gains in fixed-income and equity trading, financial advisory and debt and equity underwriting.
Outside of financials, Oracle is expected Monday to report earnings of 13 cents a share, up from 12 cents a year ago. Sales are expected to grow to 2.64 bln usd, at the high end of the company's own outlook of 2.58 to 2.66 bln usd.
Investors will be keen for any update on Oracle's long-running 9.2 bln usd hostile pursuit of rival PeopleSoft.
The retail sector will also be in focus, with earnings due from Best Buy, Bed Bath & Beyond, Circuit City and Pier 1.
November retail sales data due for release Monday kicks off a busy week on the economic calendar. Economists surveyed by CBS MarketWatch are expecting a flat reading after a 0.2 pct rise in October. Retail sales excluding autos are expected to rise 0.3 pct after a 0.9 pct rise the previous month.
Lehman Brothers said the figure will be checked by a slowdown in car sales. "Despite residual worries about the strength of holiday spending following the Thanksgiving day weekend, we reckon real consumption will increase by 3 percent in Q4 -- down from the 5.1 percent gain in Q3, but respectable, nevertheless," they said in a note to clients.
The October trade balance, due for release Tuesday, is expected to widen to 51.8 bln usd from 51.6 bln usd in September, its fifth consecutive monthly deficit in excess of 50 bln usd.
"Only last year, the US was scoring a monthly deficit in the neighborhood of a then record 41 billion dollars," said Lehman Brothers. "At least so far, dollar weakness has done little to stop the deterioration," they said.
Also due Tuesday, November industrial production is expected to show a rise of 0.3 pct, after a 0.7 pct rise in October. The gain is expected to push the capacity utilization rate to 77.8 pct from 77.7 pct.
The December Empire State Index manufacturing survey due Wednesday is expected to show a reading of 20.0, up from 19.6 in November.
Thursday brings a slew of data, including November new housing starts, expected to show an annualized rate of 1.99 mln after 2.03 mln in October. The third-quarter current account deficit is expected to widen to a new record of 169.9 bln usd from 166.2 bln usd in the second quarter.
Economists are forecasting a 0.2 pct rise in consumer prices in November, unchanged from October. Investors will focus on key energy prices where a decline in gasoline prices is expected to weigh against strong gains in natural gas prices.