dow futures up 30

Bulls try to keep charging
Stock investors look to extend the momentum amid reads on housing, consumer prices, retail sales.
By Alexandra Twin, CNNMoney.com senior writer
March 11, 2006: 9:09 AM EST


NEW YORK (CNNMoney.com) - It looks like the bulls may be able to sustain the charge -- for at least another week.

A better-than-expected February jobs report Friday gave stocks a much-needed lift after a mixed week. Analysts say that the positive momentum should be able to continue through the week ahead, particularly if the economic news is supportive and the bond market doesn't act up too much.




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Beyond that, conditions may get rougher as investors gear up for the first Federal Reserve meeting led by new chairman Ben Bernanke, at the end of the month.

While market participants seem to be counting on another interest-rate hike at that meeting, according to Fed funds futures, questions remain about how long the Fed will keep raising rates beyond March.

"It all depends on what the Fed does and the Fed has a habit over the years of overdoing things in both directions," said John Burnham, portfolio manager at Burnham Securities. "If they stop soon, that's positive for stocks, if not, that could be a problem."

Currently, the Fed funds rate, an overnight bank lending rate, stands at 4.5 percent after 14 consecutive interest rate hikes of a quarter-percentage point. The central bank began its rate-hiking campaign in June 2004.

"The short-term outlook for stocks remains positive," said Michael Darda, chief economist at MKM Partners. He said if nothing else, stocks will continue to benefit by offering a better value than other investments, including real estate, and notably, bonds.

"The bond market is at a ridiculous valuation, whereas the stock valuation is low relative to bonds," Darda said.

Last week, the yield on the ten-year note fell below that of the two-year note, a so-called flattening of the yield curve that can spell slower economic growth ahead. But longer-dated bond yields would have to rise a lot more to make them more attractive than stocks, Darda said.

He thinks stocks can keep rising even with clear signs that interest rates will keep moving up. "The question is for how long," he added.

The Fed and the consumer
The week ahead is mostly about economic news, said Jack Ablin, chief investment officer at Harris Private Bank.

The February retail sales report, the February housing starts report, March reads on manufacturing and the February Consumer Price Index (CPI) are among the highlights. (See chart for details).

The Treasury could also hit the debt limit on federal borrowing in the coming week. Usually Congress just votes to increase the limit, currently about $8.2 trillion. But some Democrats, angered about the budget deficit, may force a debate over the issue that most Republicans are trying to avoid.

On the corporate front, some big investment banks also due to report earnings, including Goldman Sachs, Lehman Brothers and Bear Stearns. While relevant, none of these are likely to sway market direction day-to-day.

On Wednesday, investors will get a look at the Fed's latest "beige book" read on the economy. The periodic survey of the central bank's 12 districts is used by policy-makers in making decisions about short-term rates.

"With the focus on the Fed and interest rates, the big stories next week will be Bernanke's first beige book and CPI," Ablin said.

The Fed's report on industrial production could be interesting as well, he added