Wall St Week Ahead: Iran, oil may be wild cards for stocks

Ellis Mnyandu, Reuters:

Wall Street may hit some turbulence next week, with Iran's nuclear dispute with the West poised to come to a head and the latest earnings reporting season all but done.

Analysts said developments surrounding Iran's nuclear ambitions probably will keep stock investors on edge. READ MORE

They believe the stock market also is likely to consolidate some of this week's gains.

Besides keeping tabs on geopolitical events, investors also will have to contend with speeches by several Federal Reserve officials. Fed Chairman Ben Bernanke is set to address an economic forum in Jackson Hole, Wyoming, on Friday.

Iran said it will respond by Tuesday, Aug. 22, to a package of incentives proposed by six world powers to encourage Tehran to halt all nuclear activities.

However there has been no sign of acceptance on Iran's part. Tehran has denounced a U.N. Security Council resolution demanding that Iran halt nuclear work by Aug. 31 or face the threat of sanctions. The United States and its allies suspect Iran of secretly trying to build nuclear weapons. But Iran says its wants nuclear technology to cope with booming demand for electricity.

"There's going to be some saber rattling going into next week, which could make it a bit tougher, especially with regards to the headlines that we may see around Iran's nuclear issue," said Steve Goldman, market strategist at Weeden & Co., in Greenwich, Connecticut.

"It will make for some skittishness as we approach the deadlines."

WHEN THE CURRENCY IS CRUDE

Investors worry that if the dispute with Iran escalates, then crude oil prices, down 9 percent from a record high of $78.40 a barrel on July 14, could rocket back up to those heights or beyond. That would compound the outlook for inflation, economic growth and corporate profits.

A surge in crude oil prices could cause the Fed to resume its interest-rate increases, analysts said. On Aug. 8, the Fed paused and kept the federal funds rate target unchanged at 5.25 percent after a string of 17 rate increases that began on June 30, 2004.

On Friday, U.S. crude oil for September delivery rose $1.08, or 1.5 percent, to settle at $71.14 a barrel on the New York Mercantile Exchange. For the week, the price of NYMEX September crude fell 4.3 percent.

ON THE HOME FRONT

Lowe's Cos. Inc., the No. 2 U.S. home improvement chain, will report quarterly earnings on Monday before the regular trading session begins.

Analysts said investors will focus more on what Lowe's says about its outlook, with signs of a slowing housing market, following a five-year boom, continuing to stream in.

Only a handful of S&P 500 companies are scheduled to report results in the coming week, as earnings season winds down. Intuit Inc. , the maker of the TurboTax software, will release earnings on Tuesday after the bell.

On the economic data front, investors will watch for the release of July existing home sales on Wednesday. Economists polled by Reuters forecast that existing home sales slowed to a seasonally adjusted annual rate of 6.55 million units in July from June's pace of 6.62 million.

July new home sales are scheduled for release on Thursday, along with durable goods orders for July. The forecast, according to the Reuters poll, for new home sales: an annual rate of 1.100 million units in July, down from June's pace of 1.131 million.

Orders for durable goods, which include washing machines, refrigerators, cars, computers and other manufacturered goods expected to last three years or more, are forecast to have declined 0.5 percent in July, after a gain of 2.9 percent in June, the Reuters poll showed.

"If you get some more weak economic numbers, then people will start to worry about growth maybe slowing too fast, and possibly a recession in 2007," said Elliot Spar, market strategist with Ryan Beck & Co. in Shrewsbury, New Jersey.

Besides Bernanke's speech on Friday, investors will take note on Tuesday of remarks on the U.S. economy at separate events by two other Fed officials: Jack Guynn, the president of the Federal Reserve Bank of Atlanta, and Michael Moskow, the president of the Federal Reserve Bank of Chicago.

A WEEK TO REMEMBER

This past week, stocks rallied on the government's back-to-back reports showing benign inflation readings for both the Producer Price Index and the Consumer Price Index for July. The three major U.S. stock indexes finished higher for five straight days, with both the Standard & Poor's 500 Index<.SPX> and the Dow Jones industrial average <.DJI> climbing to three-month highs.

Friday capped the Nasdaq's <.IXIC> longest winning streak since January, the S&P 500's longest winning run since March and the Dow's longest climb since May.

For the week, the blue-chip Dow average gained 2.65 percent, while the S&P 500 advanced 2.81 percent and the Nasdaq jumped 5.16 percent.

But even with those gains, Spar said there was room for a pullback because "the market is stretched here" following its climb in the recent week. (Wall St Week Ahead runs weekly. Questions or comments on this column can be e-mailed to: ellis.mnyandu(at)reuters.com)