U.S. stocks could struggle to make headway this week if a meeting of European finance ministers fails to reassure markets that they can contain Greece's debt problems.
Greece's financing problems have focused investors' attention on the growing mountain of public debt as cash-strapped governments around the world spend their way out of recession. The fear is Greece's problems could spread, hurting financial markets.
Finance ministers from the euro zone will meet on Monday, when U.S. markets are closed for the Presidents Day holiday, followed by finance ministers from the rest of the European Union on Tuesday.
What the market wants to hear is that there is a viable remedy, said Quincy Krosby, a market strategist with Prudential Financial in Newark, New Jersey.
The market will be anticipating how other problems will be handled. Can the solution be applied to the problems that may crop up in Spain, Portugal, Italy (and Ireland) because traders believe the aftershocks are not over.
While international headlines continue to grab investors' attention, the plight of the U.S. economy has taken a back seat. That may change during the week with a government report on housing starts as well as the latest industrial output figures on Wednesday.
For last week the Dow industrials (.DJI) and the S&P 500 rose 0.9 percent, while Nasdaq (.IXIC) added 2 percent. Still, the broad-based S&P 500 is now down 6.5 percent since hitting a 15-month closing high on January 19.
Some U.S. investors have been comparing Greece's debt woes to the bankruptcy of U.S. investment bank Lehman Brothers, which sent markets into a tail spin in September 2008.
European government sources have been sending mixed signals to markets, suggesting a lack of consensus about how to prevent Greece's debt problems from ballooning. One source said the region's finance ministers were unlikely to put together an aid package this week.
WAL-MART TO REPORT
Wal-Mart Stores Inc (WMT.N) is set to report its quarterly scorecard on Thursday. The world's biggest retailer is seen as a bellwether for the economy, and markets prize forward-looking commentary from its executives.
Wal-Mart's quarterly results will also show whether the company gained ground during the critical holiday sales period and if its retail strategy is holding onto its shoppers.
Wal-Mart is expected to post a fourth-quarter profit of $1.12 per share, according to Thomson Reuters I/B/E/S.
A series of smaller retailers will also start reporting earnings this week. They include Abercrombie & Fitch Co (ANF.N) on Tuesday and JC Penney (JCP.N) on Friday.
In total they could provide a valuable insight into the mood of consumers, who account for two-thirds of U.S. economic activity.
EYES ON THE ECONOMY
On Friday China raised bank reserve requirements for the second time in as many months as it aims to cool its economy. That worried investors counting on buoyant demand from a driving force of the world recovery.
In the United States manufacturing and housing will be in focus during this week.
U.S. housing starts are expected to rise to 580,000 in January, according to a Reuters poll, after an unexpected fall in the previous month. Investors are concerned that an end to the home credit later this year could undermine a housing recovery.
Industrial production is expected to increase 0.7 percent in January. That would continue the steady uptick of recent months and be grist to the mill for those predicting a strong turnaround in the economy.
As more economic data emerges investors will be casting a wary eye in the direction of the Federal Reserve as it gauges when to raise interest rates.
Fed Chairman Ben Bernanke on Wednesday detailed how the U.S. central bank will begin to wean the economy off its extraordinary monetary stimulus, presenting another headache for markets.
That will likely eclipse the release of minutes from the Fed's most recent policy meeting. Markets usually look to the minutes for an insight into the Fed's thinking on the economy.
This week a series of regional Fed officials are set to speak. Although markets see them as secondary in importance to Bernanke the general tone could affect markets at the margins.
Federal Reserve Bank of Kansas City President Thomas Hoenig speaks on Knocking on the Central Bank's Door on Tuesday. Hoenig received attention recently for arguing the Fed should drop its commitment to keep interest rates at very low levels for an extended period.