Stocks are expected to rise early in the week as investors breathe a sigh of relief that damages from Hurricane Rita were not as bad as feared.
But earnings warnings and weak economic indicators expected later in the week could blunt any rally.
The storm dumped up to a foot of rain and lashed an area near the border between Louisiana and Texas with 120 mile-per-hour winds, but dealt only a glancing blow to Houston, center of the U.S. oil industry and the fourth-largest U.S. city.
“The damage from the storm, both in terms of the physical damage and any human impact, was certainly less than expected so that should really bode well for the financial markets,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
More than 2 million people evacuated coastal areas along the Gulf of Mexico and Houston and some 15 Texas and Louisiana refineries were completely shut down before the storm hit.
Falling energy prices, which reached record highs in early September in the wake of Hurricane Katrina, will help fuel the expected rally in stocks.
Stocks could be up “several percent” on a relief rally early in the week, roughly equal to any drop in energy prices, Ghriskey added.
Oil and gas prices dropped Sunday after early indications showed that Hurricane Rita did not cause as much damage to refineries and offshore platforms as was initially feared.
“It appears the refining industry, the oil and gas industry (suffered) a glancing blow at worst. Hopefully they’ll be back in production very soon,” Texas Gov. Rick Perry said on Sunday during an interview with CNN.
NYMEX gasoline futures traded down sharply in a special ACCESS trading session on Sunday, while U.S. crude oil futures also slumped.
Shares of retailers are expected to be up strongly Monday as stores affected by the storm will be able to open sooner than expected. Wal-Mart Stores Inc. said Saturday it expected September sales to grow within its forecasted 2 percent to 4 percent range despite shutting 145 stores and five distribution centers ahead of Rita.
The Dow Jones industrial average ended down 2.46 points, or 0.02 percent, at 10,419.59 Friday. The Standard & Poor’s 500 Index was up 0.67 of a point, or 0.06 percent, at 1,215.29. The technology-laced Nasdaq Composite Index rose 6.06 points, or 0.29 percent, to 2,116.84.
For the week ended Sept. 23, the Dow closed down 2 percent, the S&P fell 1.8 percent and the Nasdaq declined 2 percent.
Earning, oil could hurt
The upcoming week also offers a slew of economic reports and investors will most likely focus on consumer confidence data, which is key to consumer spending, trying to gauge the strength of the U.S. economy and weekly oil inventory data for its impact on oil prices.
“The big question here is the psychological impact and the financial impact that high energy costs are having on consumers,” said Peter Cardillo, chief market analyst and chief strategist at SW Bach and Co.
The companies reporting earnings this week include top U.S. drugstore chain Walgreen Co., spice maker McCormick & Co. and soft-drink giant PepsiCo Inc. In addition, home improvement retailer Lowe’s Cos. Inc. will host an analyst meeting and Chevron Corp. is scheduled to provide an interim update.
“Earnings warnings are in the air and obviously, there will be continued warnings on the consumer side. The Street is behind in lowering expectations for this group and there are negative surprises likely ahead in that group,” Ghriskey said.
Even before Hurricane Katrina struck, earnings were expected to slow in the third quarter but after Hurricane Rita, rising energy costs and weak consumer spending threaten to hurt corporate profits even more this quarter.
Investors will sift through weekly oil inventory data on Wednesday. Also, September consumer confidence data is expected on Tuesday, August durable goods numbers on Wednesday and second-quarter real gross domestic product data on Thursday.
Weekly initial jobless claim figures on Thursday and August personal income data and University of Michigan’s September consumer sentiment index on Friday will also be scrutinized.
