Wall St. hopes for quiet, braces for noise

By Justin Lahart
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- Rest for the weary?

Throughout the summer investors have been treated to a spectacle that, if they didn't have so much money riding on it, would be fun to watch. Strings of days where the Dow fell by more than 100 points, fresh worries about corporate misdeeds and signs of a cooling economy made for plenty of sleepless nights. A snapback off the late July lows got people hoping, again, that the worst is over.

But mostly what Wall Street would like now is a little peace and quiet. The Dow hasn't had a week where it swung in a range lower than 500 points since June.

"These markets go up or down a couple of hundred points when there's no reason for them to," said Jim Volk, director of institutional trading at D.A. Davidson.

The calendar is light in the week ahead (click here to jump straight to a lineup of key events), and plenty of market participants are off to the beach. But don't count on a quiet market.

For one thing, lower trading volume makes for higher volatility -- it takes less money to move things around. Moreover, program trading -- computer-driven buying and selling that can really whip the market around -- is on the rise, accounting for around 38 percent of average daily volume on the New York Stock Exchange. At this point last summer, program trading accounted for just 29 percent of volume.

Combine those things with an already skittish market and, well, don't even think about using the food tray or lowering your seat from its full, upright position.

"I've never seen so many positives and negatives sloshing around together," said Stanley Nabi, managing director at Credit Suisse Asset Management, of the current environment. "Investors are having a hard time reasoning them out."

Nabi's optimistic that the positives -- like lower valuations and an eventual recovery in the economy -- will overrun the negatives. The only things that could make stocks move below the lows they hit last month, he thinks, is if current-quarter earnings are bad or if it becomes clear the economy is headed for a double-dip recession. On the earnings front, he reckons that companies have lowered investors' expectations enough that there shouldn't be many bad surprises. As for the double-dip, he doesn't think it's in the cards.

Most economists agree with Nabi on the double-dip at this point, saying such an event is unlikely. But a number think that the potential for a double-dip is serious enough, and that the consequences of one are so severe, that eventually the Fed will act. The economy softened in July and some preliminary reports, like the Philadelphia Fed's survey of manufacturers and the University of Michigan's poll on consumer sentiment, suggest that August could be weak.

"We slowed, but the question is how much," said Bill Dudley, director of U.S. economic research at Goldman Sachs.

That question will still be there at the end of the coming week -- there's frustratingly little on the economic data front. But Dudley suspects that the slowing will be pronounced enough in the months to come that the Fed will cut by three-quarters of a point by year's end, bringing the funds rate down to one percent.

The potential for such economic uncertainty is one of the things making Ehrenkrantz King Nussbaum investment strategist Barry Hyman uncertain of the market's ability to go much higher -- he views the recent move up just another short-term rally in a long bottoming process. For now he thinks the market is stuck in a range, and the S&P 500, at 928 now, will have a hard time nosing any higher than 1,000. If he's wrong, and this really is the beginning of a new bull market, he figures he'll just get in later.

"I don't mind being cautious a little too long and coming late to the game," he said. "I'm comfortable being wrong."

Key events in the week ahead

Monday morning the Conference Board releases its index of Leading Economic Indicators for July. Since it is based on economic reports that have already been released, it is rarely a surprise. Still, it can serve as a reminder for what's going on in the economy and occasionally moves markets. Economists surveyed by Briefing.com think it slipped by 0.5 percent.

Toys R Us (TOY), which has struggled in recent years, reports results Monday morning. The jury is still out on the company's remodeling program (it will probably stay out until the holiday-shopping season gets under way) and meanwhile investors worry about its credit position -- both Moody's and Standard & Poor's cut their ratings on Toys R Us earlier this year. Analyst polled by Multex expect the company lost 11 cents per share this past quarter.

Also reporting Monday morning, Lowe's (LOW), the fast-growing do-it-yourself outfit. With its main competitor, Home Depot (HD), in disarray, Lowe's has gained market share. It's also benefited from the surge in mortgage refinancing this past year: homeowners often spend the cash raised in a refinancing on house improvements. But investors have worried lately that, with rates so low, the refi boom is going to lose its juice and housing activity could cool, too. Analysts think that Lowe's earned 54 cents per share in the quarter, but the real key will be what the company says about the future.

Tuesday morning Home Depot reports. What investors care about there isn't so much what the company says about its market environment, but how the company's efforts to put its house in order are progressing.

BJ's Wholesale (BJ) reports results Tuesday morning. Earlier this month the discount retailer lowered its guidance to about 50 cents a share from the 52-to-54 cents it had previously expected. Since one would think BJ's should grab sales from higher-end retailers in the current, cautious environment (like Wal-Mart has), investors didn't view the warning kindly.

Tuesday the Commerce Department releases the trade balance for June. Economists expect a trade deficit of about $37.5 billion. The report could have major implications on the final reading for gross domestic product, or GDP.

Talbots (TLB) reports earnings Wednesday morning. A rising star among women's retailers last year, the chain busted a heel when fashion miscues hurt first-quarter results. Sales since then have exceeded the company's expectations, but are still weak compared with last year. Investors will be looking for word of how Talbots' men's line has been panning out and will also want an early read on how fall is shaping up. Analysts expect the company earned 32 cents a share in its latest quarter.

Weekly jobless claims numbers don't tend to be big market movers, but Thursday's tally could be different. Investors are keen to know whether the apparent air pocket in the economy has had any effect on the job market. If it has, consumer spending would be in trouble and worries about a double-dip recession would quicken.

Barnes & Noble (BKS) reports Thursday morning; Borders (BGP), its main competitor, reports after the close. Analysts expect Barnes & Noble to earn 10 cents per share and Borders to pull in 3 cents a share. Both companies' businesses have brightened since 2000 (a bad year), but investors have been shucking shares of the two this year. Where have you gone, J.K. Rowling? The bookstores turn their lonely eyes to you. Woo woo woo.