Zigzaging stock market may continue back and forth trend

NEW YORK -- A stock market that has shuttled between a level of comfort over the economy and deep anxiety over oil prices may be making that zigzag again this week as the government releases key inflation figures.

Wall Street has been fluctuating for weeks, torn between assurances that a healthy economy is not being hurt by oil, and crude's seemingly endless trek upward. It happened again last week, with strong corporate earnings and an upbeat read on the economy from the Federal Reserve soothing investors, and a crude price approaching $67 a barrel then undermining their confidence.

With the Labor Department issuing its consumer and producer price reports this coming week, Wall Street could face another streak of volatility, especially if it appears that oil is driving other costs higher.

But some analysts discount oil's impact on stocks, saying the market is a little too high after a big July rally, and therefore due for a pullback.

The market went south toward the end of last week's trading because it "was probably overbought and ready for correction," said Alexander Paris, an economist and market analyst at Chicago-based Barrington Research.

Improved earnings and economic data show that the economy is still able to grow despite higher oil prices putting a squeeze on the market, Paris said.

"I can't really get negative about the stock market when corporate profits are good," Paris said. "There was a temporary slowdown after second-quarter earnings. Investors are focusing on what's ahead."

But Mitch Zacks, portfolio manager at Zacks Investment Research, said this week's inflation numbers should be tame, and instead sees further gains on the market.

"Earnings are up, rates are low -- the market should continue to rally," said Mitch Zacks, portfolio manager at Zacks Investment Research. Zacks added that he expects the Standard & Poor's 500 index to gain 5 percent to 6 percent by year end.

The Dow Jones industrials ended the week up 0.40 percent, while the Standard & Poor's 500 index rose 0.32 percent. But the Nasdaq composite index fell 0.96 percent.

ECONOMIC DATA

On Tuesday morning, the Department of Labor will report the Consumer Price Index, which tracks the change in retail prices for a fixed group of consumables. The index was flat in June, but is forecast to increase a slight 0.4 percent for July.

Setting aside the volatile costs of food and energy, the "core" CPI for July is estimated to inch up 0.2 percent compared with a 0.1 percent increase the month before.

The Labor Department will also publish the Producer Price Index, which measures wholesale prices and is sometimes considered a meter of future inflation. The index, to be released Wednesday, is expected to increase 0.5 percent in July after coming in unchanged for June. "Core" PPI is projected to rise 0.2 percent after declining 0.1 percent the month before.

Also Wednesday, the Department of Commerce reports on housing construction and building permits. Economists see July housing starts growing by 1.5 percent, while permits are forecast to decline about 1.1 percent.

Lastly, the Fed on Wednesday will release data on the nation's monthly industrial output, with production estimated to be 0.5 percent higher after rising 0.9 percent in June.

EARNINGS

Profits at retail giant Wal-Mart Stores Inc. are expected to be up to 65 cents per share from 62 cents last year when it releases quarterly results before the start of Tuesday's session. Wal-Mart previously warned that earnings would be "below plans," blaming the impact of cool weather and soaring gas prices on its lower-income customer base. But a moderate gain in same-store sales last month brightened the company's outlook. Shares hit a two-year low of $46.65 in April -- down 13 percent so far this year -- and on Friday closed at $48.70.

Home-improvement shop Home Depot Inc. also reports its earnings Tuesday morning and is expected to continue more than four years of profit growth, as sales expand amid strength in do-it-yourself spending. Quarterly income is projected at 80 cents per share, up from 71 cents in the year-ago period. Home Depot's stock sank to a recent low of $34.56 in late April, before recovering and almost touching a 52-week high of $44.30 from last November. Shares closed Friday at $41.28.

Hewlett-Packard Co. releases its results Tuesday afternoon, with analysts predicting income at 31 cents per share versus 24 cents the year before. HP shares have climbed 55 percent from a 52-week low of about $16 last August, and closed Friday at $24.03. A month ago, the computer and printer maker announced plans to cut another 10 percent of its 150,000 workers as it pares down inefficiencies and overhaul its offerings to compete with rivals Dell Inc. and IBM Corp.

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