Soaring crude prices plus worries about the economy and the outlook for earnings are expected to hang over the stock market next week during the depth of the summer doldrums.
US oil prices topped $46 a barrel last Friday, setting new highs every trading session except one in August, and showing little sign of slowing a steady climb since June. A host of issues, the latest being yesterday's referendum in Venezuela, raise concerns about world supply.
Investors will get more clues about inflation and the economy when three key indicators for July are released tomorrow: the Consumer Price Index, housing starts and industrial production and capacity utilisation.
If the data meet expectations, that might suggest improvement and break up the gloom brought on by oil, said Richard Suttmeier, chief market strategist at Joseph Stevens & Co.
"The key is getting though this soft patch, which obviously is caused by crude oil and what I'll call politics," he said.
Overall CPI is expected to be up 0.1 per cent in July, after a 0.3 per cent gain in June, while core CPI, excluding volatile food and energy costs, is forecast to gain 0.2 per cent, according to analysts surveyed by Reuters. In June, core CPI was up 0.1 per cent.
Industrial production is forecast to reverse a decline and rise 0.5 per cent in July, while plant utilisation is expected to gain 3/10ths of a per cent to 77.5 per cent, a Reuters poll of economists showed.
Housing starts in July should rise to a seasonally adjustedannual rate of 1.900 million units after dropping in June to a rate of 1.802 million units.
The close presidential race has caused companies, which have plenty of money, to postpone spending on major investments because of the uncertain outcome of the November election, Mr Suttmeier said.
The spending slowdown is more important for the stock market than oil prices, he added.
"In the media and on television, it's easier to talk about (oil) than spending by corporations," Mr Suttmeier said. "What you're seeing in every one of these tech earnings releases is that corporate spending has been postponed."
Cautious comments by the chief executive of Cisco Systems Inc. and profit warnings from other technology companies, including Hewlett-Packard Co., unsettled investors during the past week.
On Friday, US crude jumped to $46.65 a barrel - the highest price in the 21 years that oil futures have been traded on the New York Mercantile Exchange.
NYMEX September crude settled on Friday at a record close of $46.58, up $1.08.
Stocks ended Friday's session slightly higher, but still near fresh 2004 closing lows set the previous day. In fact, investors' concerns about future profit growth and the economicimpact of record oil prices drove the three major US stock indexes down to close at new lows for the year twice recently - on Friday, August 6, and on Thursday, August 12.
For the week, the major stock indexes were mixed. The technology-laced Nasdaq Composite Index fell 1.1 per cent, its second straight weekly drop, while the blue-chip Dow Jones industrial average and the benchmark Standard & Poor's 500 Index eked out slight gains over the previous week. The Dow rose 0.10 per cent, and the S&P 500 gained 0.08 per cent.
Companies slated to release earnings this week include the Home Depot Inc., the world's leading home improvement retailer, and one of the 30 stocks in the Dow average. Earnings also are on tap from a widely watched Nasdaq-listed company, Applied Materials Inc., the biggest semiconductor equipment maker, and Medtronic Inc., a New York Stock Exchange-listed company that makes pacemakers, heart surgery equipment and other medical devices.
In a slow week for earnings, Home Depot and Applied Materials report tomorrow and Medtronic on Wednesday. This week falls in mid-August, the height of the summer doldrums when trading volume is light as many market participants go on vacation.
"Next week doesn't look (like) that significant of a week for me," Brett Mitstifer, senior portfolio manager at Value Line Asset Management, which oversees $3.5 billion, said on Friday.
The prospect of a slowing economy and rising rates, along with concerns over terrorism and earnings have crimped the outlook for the stock market, he said.
Then there's oil, which Mr Mitstifer said, "is an easy one to blame the problems on."
The stock market is being buffeted by what Tim Swanson, chief investment officer for National City Corp.'s private client group, calls the six "e"s: the election, energy, the economy, earnings, employment and extremists.