Will coming data help sustain market rally?

The dollar’s rebound and oil’s tumble breathed some serious optimism into Wall Street last week. But no one knows for sure yet whether the two trends are truly antidotes for what’s been ailing the stock market.

This week, investors will be focusing again on the U.S. currency and the energy markets, but also on retail industry reports to gauge consumer spending.

Consumers would certainly benefit from lower food and fuel costs, but they also still face falling home prices, huge debt loads and an uncertain job market. If it appears that they are struggling severely, the recent decline in energy prices might not be enough to sustain a stock market rally.

On Wednesday, the Commerce Department reports on retail sales in July, data coming on the heels of spotty sales figures released by individual retailers last week. According to the median estimate of economists surveyed by Thomson Financial/IFR, the report is likely to show flat sales for the month compared with June, when retail sales rose 1%.

Some major retailers are also releasing their quarterly results this week. Those companies include Wal-Mart Stores Inc., Macy’s Inc., JCPenney Co., Kohl’s Corp., Abercrombie & Fitch Co. and TJX Cos., which operates T.J. Maxx and Marshalls.

Last week, the Dow Jones industrial average rose 3.6%, the Standard & Poor’s 500 index rose 2.9%, and the Nasdaq composite index rose 4.5%. All three major indexes posted their biggest weekly gains since April.

A huge chunk of the gains came Friday, when the U.S. dollar soared against its main rival currencies. That helped drive the stock market’s rally and a sell-off in commodities including crude oil, gasoline, corn and soybeans.

A big rally came earlier in the week too, on Tuesday, after the Federal Reserve said “economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports.”

But as any investor will tell you, the markets have been extremely volatile, and calling a top or a bottom to a market is a tough endeavor.

Moreover, there are many economists who say the weak dollar has actually been what’s keeping the United States from sliding into a severe recession. The reason is exports: When the dollar is low, U.S. goods are cheap to foreigners.

“The main source of support for the U.S. economy in recent quarters has been the strength of net exports,” Bernard Connolly of Banque AIG Research wrote in a note Friday. “But the world economy has fallen off the edge of a cliff.”

Last month, the Commerce Department said the trade gap narrowed in May thanks to record-high exports. The department on Tuesday releases its June reading on the trade deficit, which is expected to have widened again.

In other economic data, the Labor Department on Thursday releases its index of consumer prices for July. Economists are anticipating a rise of 0.4%, or 0.2% after stripping out food and energy prices.

And on Friday, the University of Michigan reports on consumer sentiment for the first part of August. Economists predict a modest rise.

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At a glance

Today

Results of weekly Treasury auction.

Bankruptcy settlement hearing for Countrywide Home Loans.

Tuesday

Commerce Department releases international trade data for June and, later, the federal budget.

President Bush meets with the Coalition for Affordable American Energy.

Quarterly earnings reports expected from TJX and Thomson Reuters.

Wednesday

Commerce Department releases retail sales for July and, later, reports business inventories for June.

Quarterly earnings reports expected from Deere and Macy’s.

Thursday

Labor Department reports on consumer prices for July and posts weekly jobless claims data.

Freddie Mac reports on weekly mortgage rates.

Quarterly earnings reports expected from JC Penney, Kohl’s and Wal-Mart Stores.

Friday

Federal Reserve reports on capacity utilization and industrial production for July.

Quarterly earnings report expected from Abercrombie & Fitch.

Source: The Associated Press