There's a tug of war in the financial markets between investors who believe the economy is on its way to a strong recovery and those who believe a rebound will be slow and bumpy.
The result: a spate of volatility in stock trading that will probably continue this week.
"That wide divergence in opinion can lead to wide swings in market prices," said Greg Walker, an investment strategist in JPMorgan Chase & Co.'s private banking division.
For several weeks, upbeat investors have dominated the market, helping stocks move higher. But the market's momentum is only as strong as the latest economic or earnings report.
This week brings readings on retail sales, manufacturing, housing starts and inflation. The Labor Department also provides its weekly look at unemployment benefits claims.
Tom Villalta, lead portfolio manager of the Jones Villalta Opportunity Fund, said economic reports are playing a major role in the day-to-day gyrations of the market as investors look for evidence to back up their views on the recovery.
"It's a matter of bolstering one side over another," Villalta said. "People are taking anything that comes out to bolster one opinion or another."
Today's Commerce Department report on October retail sales will probably set the tone for the week. Analysts generally agree that stronger consumer spending is needed for any rebound. And disappointment will probably send stocks falling.
"A steady stream of mediocre news from the consumer sector does not translate into high numbers for the stock market," said Mike Schenk, senior economist for the Credit Union National Assn.
Meanwhile, major retailers reporting third-quarter earnings will have their own take on the consumer. Home Depot Inc., Target Corp. and TJX Cos. are among those reporting.
Better-than-expected earnings and outlooks from Abercrombie & Fitch Co. and J.C. Penney Co. helped push stocks higher Friday. Wal-Mart Stores Inc. reported stronger-than-expected earnings Thursday, but said sales would probably be little changed during the fourth quarter at stores open at least a year.
The Dow Jones industrial average ended the week up 2.5%, while the broader Standard & Poor's 500 index rose 2.3%. The Nasdaq composite index rose 2.6%.
Retailers' sales outlooks will probably be even more important than last quarter's results.
"We're particularly looking at guidance for the holiday season," said Benny Lorenzo, chief executive of investment bank Kaufman Bros. He said the market had factored in weak holiday sales for the second straight year, so any corporate outlooks that lift those hopes would have a positive effect on the market.
Consumer spending accounts for about 70% of all economic activity, so without a boost from shoppers, the economy will probably stagger through the end of the year as government stimulus spending eases and there is nothing to take its place.
Meanwhile, a Commerce Department report on housing due Wednesday is expected to show home starts rose 2% in October to an annual rate of 600,000 units.
Building permits, a sign of future activity, are expected to have increased 1% to an annual rate of 580,000.
BEGIN TEXT OF INFOBOX
At a glance
Commerce Department releases business inventories for September and retail sales for October.
Quarterly earnings report due from Lowe's.
Labor Department releases the producer price index for October.
Treasury releases money flow data for September.
Federal Reserve releases industrial production for October.
National Assn. of Home Builders releases housing market index for November.
Quarterly earnings reports due from Home Depot, Saks and Target.
Labor Department releases consumer price index for October.
Commerce Department releases housing starts for October.
Quarterly earnings reports due from BJ's Wholesale Club and Limited Brands.
Conference Board releases its leading economic indicators index for October.
Labor Department releases weekly jobless claims.
Freddie Mac releases weekly mortgage rates.
Quarterly earnings report due from Gap and Sears Holdings.
Quarterly earnings reports due from D.R. Horton and J.M. Smucker.
Source: Associated Press