| NEW YORK
NEW YORK Wall Street's spotlight will fall on the consumer next week. Investors will look to earnings from major retailers and data on consumer spending with the hope that the numbers will show that Americans have indulged in some retail therapy in recent weeks.
Good news on the shopping front could provide some potential catalysts for a stock market that has stumbled a bit of late.
The last two full weeks of earnings season are packed with consumer bellwethers. Macy's (M.N) is scheduled to report results on Wednesday, while Wal-Mart Stores Inc (WMT.N), the world's largest retailer, will release quarterly earnings on Thursday, along with upscale department store Nordstrom (JWN.N) and discount retailer Kohl's (KSS.N). Home Depot (HD.N), Target (TGT.N) and Staples (SPLS.O) will follow the week after that.
Positive news about consumer spending could give the market some upward momentum, which has lagged since stocks wrapped up a strong July. The S&P 500 fell 1.1 percent this week - its worst weekly performance since June.
In the absence of strong earnings and economic data, however, analysts say the market is likely to trend lower as volume thins out heading into the latter half of August.
"We're a consumer-driven economy, so if those earnings come in shy of expectations, the lack of personnel on Wall Street could certainly cause some weakness," said Tom Schrader, managing director of U.S. equity trading for Stifel Nicolaus Capital Markets in Baltimore.
Earnings on the whole have topped expectations, with 67 percent of the 446 companies in the S&P 500 that had reported earnings so far beating estimates. About 54 percent of companies have reported revenue above expectations, exceeding the average of the past four quarters, but below the historical average.
The consumer discretionary sector has tallied the second-best earnings growth of the 10 S&P 500 industry sectors, with 8.5 percent growth in the second quarter, according to Thomson Reuters data. Consumer staples have been weaker, with earnings growth at 3.8 percent for the second quarter.
Consumer spending has been restrained by an increase in taxes at the start of the year, but it is expected to accelerate during the second half. Growth in the S&P 500's consumer discretionary sector is second only to the technology sector in 2013; the consumer discretionary index has climbed 26.6 percent so far this year
Of the 13 S&P 500 companies scheduled to report next week, four are retailers.
"Any commentary coming out of these late-filing retail companies is going to be interesting," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
"We're shifting back to a little broader perspective on how the economy is doing, how the consumer feels, and how that feeds back into GDP."
Despite the stock market's pullback in the latest week, analysts say sentiment about equities remains positive. U.S.-based stock funds marked their sixth straight week of inflows in the week ended August 7, while U.S.-based Treasury bond funds suffered a record outflow of $3.27 billion, according to Lipper, a Thomson Reuters company.
For the year, the Dow Jones industrial average has advanced 17.7 percent and the Standard & Poor's 500 Index has climbed 18.6 percent. The Nasdaq Composite Index has gained 21.2 percent for the year.
SHOPPING, CPI AND THE FED
In addition to earnings, the coming week's numbers will include consumer spending and sentiment figures. The economic data will include a reading on inflation, measured by the U.S. Consumer Price Index.
On Tuesday, the Commerce Department will release data on July retail sales. The forecast is for a 0.3 percent gain since June, with a 0.4 percent rise expected when car sales are excluded, according to economists polled by Reuters.
July CPI will be released on Thursday. If the CPI figure comes in between 2 percent and 2.5 percent higher year-over-year, the Fed is likely to take the data as a sign that it can start trimming its stimulus as early as September, said Keith Bliss, senior vice president at Cuttone & Co in New York.
"If it comes in lower than 2 percent, then I actually think you'll see the market rally on the news because then people will say 'OK, they aren't going to taper,'" he added.
Economists polled by Reuters have forecast that July CPI, on a year-over-year basis, will show a gain of 2.0 percent.
The Thomson Reuters/ University of Michigan consumer sentiment index will be released on Friday, with a preliminary reading for August. Expectations are for a small uptick. The consumer sentiment index hit a six-year high in July on increased optimism about the current economic climate.
"We are starting to get consumer confidence numbers rising, which is very normal in a rising stock market," said Leo Kelly, managing director and partner in HighTower's Kelly Wealth Management in Hunt Valley, Maryland.
"We have seen gas prices level off, which is a positive, but mortgage rates are up, and we saw the number of refis go down significantly, so that's less cash in the consumer pocket."
(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: alison.griswold(at)thomsonreuters.com)
(Editing by Jan Paschal)