MARKET SNAPSHOT: U.S. Stocks Get Retail, Inflation Test Next Week

By Nick Godt

As U.S. stocks seemingly continue their steady upward course, investors will next week turn to more economic data, including key readings on retail sales and inflation, and try to fine-tune expectations about the shape of the economic recovery.

"The market continues to look pretty good," said Ken Tower, market strategist at Quantitative Analysis Services.

In spite of a slump on Friday, stocks rose strongly over the past week, and remain on firm footing so far in September, which historically has not been a good month for stocks.

On Friday, the Dow Jones Industrial Average (DJI) fell 22.07 points, or 0.2%, to finish at 9,605.41. The broad S&P 500 Index (SPX) fell 1.41 points, or 0.1%, to stand at 1,042.73. The Nasdaq Composite (RIXF) declined 3.12 points, or 0.2%, to 2,080.9.

For the week, the Dow rose 1.7%, the S&P 500 gained 2.6% and the Nasdaq jumped 3.1%. For September so far, the broad market, as measured by the S&P 500, is up 2.2%.

"There's a lot of positives as we go into next week after an upbeat consumer [sentiment] survey and an upbeat outlook from FedEx [on Friday]," Tower said.

Consumer sentiment, as measured by Reuters and the University of Michigan, improved markedly in early September after slumping in the two previous months.

The consumer-sentiment index jumped 70.2 from 65.7 in August. It's the highest reading since June, and is significantly better than the 68.0 that was expected by economists surveyed by MarketWatch.

The market remains powered by expectations that government measures to boost the economy should see growth return in the second half of this year and beyond. Yet, rising unemployment and sluggish consumer spending have remained key areas of concern for investors.

Still, economic reports after economic reports, and increasingly some corporate earnings, have continued to come in better-than-expected.

"We're not at the point where we expect much better things to come," Tower said.

"But surprises are still likely to be on the upside and on a day-to-day basis, we're getting more positives than negatives. That's a radical change after having had the world economy on the edge of collapse."

On Tuesday, the Commerce Department will release retail sales figures for August. Economists surveyed by MarketWatch on average expect retail sales jumped 2.1% last month, following a 0.1% drop in July.

The boost likely came from the government's popular "cash-for-clunkers" program to encourage drivers to trade in their old vehicles for newer, more fuel-efficient ones, according to BMO Capital Markets.

"However, soft chain-store sales suggest continued weakness in discretionary spending," the firm said in a note.

Investors will also key in on earnings from electronics retailer Best Buy Co. Inc. (BBY) on Tuesday.

Also on Tuesday, an index of manufacturing in the New York region will be released, along with the August producer price index.

On Wednesday the consumer price index for August, current account figures for the second quarter, the National Association of Homebuilders index for September, and industrial production numbers for August will be released.

On Thursday, August housing starts and September manufacturing data from the Philadelphia region will be reported.

Fed speak

On Wednesday, the Federal Reserve said the economy is improving across most U.S. regions but also noted that consumer spending remains sluggish. The mixed verdict, however, has also reassured investors that the central bank will keep liquidity flowing, according to BMO.

On Tuesday, Fed Chairman Ben Bernanke might elaborate after a speech to be given on the anniversary of the collapse of Lehman Brothers a year ago.

On Monday, Fed governor Elizabeth Duke, Richmond Fed president Jeffrey Lacker and San Francisco president Janet Yellen will also give speeches.