- The Washington Times - Sunday, August 14, 2005

NEW YORK (AP) — A stock market that has shuttled between a level of comfort over the economy and deep anxiety over oil prices may be making that zigzag again this week as the government releases key inflation figures.

Wall Street has been fluctuating for weeks, torn between assurances that a healthy economy is not being hurt by oil, and crude’s seemingly endless trek upward. It happened again last week, with strong corporate earnings and an upbeat read on the economy from the Federal Reserve soothing investors, and a crude price approaching $67 a barrel then undermining their confidence.

With the Labor Department issuing its consumer and producer price reports this week, Wall Street faces another streak of volatility, especially if it appears that oil is driving other costs higher.

But some analysts discount oil’s impact on stocks, saying the market is a little too high after a big July rally, and therefore due for a pullback.

The market went south toward the end of trading last week because it “was probably overbought and ready for correction,” said Alexander Paris, an economist and market analyst at Barrington Research in Chicago.

Improved earnings and economic data show that the economy is still able to grow despite higher oil prices putting a squeeze on the market, Mr. Paris said.

“I can’t really get negative about the stock market when corporate profits are good,” Mr. Paris said. “There was a temporary slowdown after second-quarter earnings. Investors are focusing on what’s ahead.”

But Mitch Zacks, portfolio manager at Zacks Investment Research, said this week’s inflation numbers should be tame, and instead sees further gains on the market.

“Earnings are up, rates are low — the market should continue to rally,” he said. He expects the Standard & Poor’s 500 index to gain 5 percent to 6 percent by year’s end.

The Dow Jones industrials ended the week up 0.40 percent, while the Standard & Poor’s 500 index rose 0.32 percent. But the Nasdaq Composite Index fell 0.96 percent.

Tomorrow morning, the Department of Labor will report the Consumer Price Index (CPI), which tracks the change in retail prices for a fixed group of consumables. The index was flat in June but is forecast to increase 0.4 percent for July.

Setting aside the volatile costs of food and energy, the “core” CPI for July is estimated to edge up 0.2 percent compared with a 0.1 percent increase a month earlier.

The Labor Department also will publish the Producer Price Index (PPI), which measures wholesale prices and sometimes is considered a meter of future inflation.

The index, to be released Wednesday, is expected to increase 0.5 percent in July after coming in unchanged for June. “Core” PPI is projected to rise 0.2 percent after declining 0.1 percent the month before.

Also Wednesday, the Department of Commerce reports on housing construction and building permits. Economists see July housing starts growing by 1.5 percent, while permits are forecast to decline about 1.1 percent.

Finally, the Fed on Wednesday will release data on the nation’s monthly industrial output, with production estimated to be 0.5 percent higher after rising 0.9 percent in June.

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