If bulls have their way next week, U.S. stocks could extend the rebound that has some on Wall Street hoping the worst is over after a month-long sell-off.
But with inflation and interest-rate worries still the talk of the market, trading could again prove to be volatile.
Stocks recovered this week, with the Dow Jones industrial average posting double-digit gains both Wednesday and Thursday. The rebound was strong enough to drive the Dow and the S&P 500 back into positive territory for the year.
A lot of the near-term rate worries are already in the market, but if we see further inflationary concerns, that's your catalyst for the next market drop, said Barry Hyman, equity market strategist at EKN Financial Services Inc., in New York.
Fed fund futures have now fully priced in an interest-rate hike at the Federal Reserve's next policy meeting on June 28-29, and chances are at about 70 percent for another increase in August.
Inflation worries picked up earlier this week when core consumer and producer price indexes exceeded expectations. But that was offset by Fed Chairman Ben Bernanke's speech on Thursday, when he said inflation expectations had fallen back somewhat and that the impact of high energy prices on the economy has been limited.
I've got a sense that after the big sell-off and rebound, we're going to probably move to the upside, but it's not going to be the big fireworks we saw in the last two days, said Jon Brorson, managing director of growth equities at Neuberger Berman, an investment advisory firm in Chicago.
STOCKS MIXED FOR THE WEEK
On Friday, the Dow Jones industrial average ended down just 0.64 of a point, or 0.01 percent, at 11,014.55. The Standard & Poor's 500 Index fell 4.62 points, or 0.37 percent, at 1,251.54. The Nasdaq Composite Index declined 14.20 points, or 0.66 percent, to close at 2,129.95.
For the week, the Dow rose 1.13 percent, the S&P 500 dipped .06 percent, and the Nasdaq fell 0.24 percent.
For the year, the Dow is up 2.8 percent and the S&P 500 is up 0.26 percent, while the Nasdaq is down 3.4 percent.
Before Tuesday, the Nasdaq was down 12 percent from its high in April, suggesting that the market was oversold.
I think we could get up to 11,300 next week on the Dow and about 1,280 on the S&P. It's a playable bounce, and I think it will continue, said Marc Pado, U.S. market strategist in the San Francisco office of New York-based Cantor Fitzgerald & Co.
After a heavy schedule of Fed speakers, just one Fed official is set to talk next week: Federal Reserve Bank of Atlanta President Jack Guynn, who is giving a speech on the economic outlook in Naples, Florida, on Monday.
HOUSING AND DURABLE GOODS AHEAD
A relatively light economic calendar will include a look at U.S. housing starts and building permits for May on Tuesday, followed by weekly initial jobless claims and the May reading for the index of leading U.S. economic indicators on Thursday, and May data on U.S. durable goods orders on Friday.
Economists polled by Reuters forecast May housing starts will rise slightly to an annualized rate of 1.850 million units, from 1.849 million units in April. The data will be released on Tuesday at 8.30 a.m. (1230 GMT).
On Thursday, initial jobless claims for the week ended June 17, are forecast to show an increase to 310,000 from 295,000 in the previous week, the Reuters poll showed.
The leading indicators index for May is expected to decline 0.4 percent, after a 0.1 percent drop in April.
On Friday, U.S. durable goods orders are expected to rise 0.5 percent in May after a drop of 4.4 percent in April.
Durable goods are manufactured items like washing machines and refrigerators meant to last three years or more.
RATES, VOLATILITY AND OIL
Analysts said the next big piece of news will come from the Fed's rate meeting the last week of June.
That's going to be the main driver here. The Fed governors have been out in full force, and everyone's listening to what they have to say, Brorson said. We're being buffeted by their speaking and their reaction to two forces: the higher inflation data we've experienced and the opposite force is the economy, and the economy slowing.
Volatility, which has been a key feature of the market for weeks, will continue, and may provide some good opportunities for trades, analysts said.
There are traders looking to pick up stocks on volatility opportunities. That's what keeps the market from having severe downtrends, Hyman said.
Crude oil also remains a focus for investors, with prices hovering near $70 a barrel. On Friday, concerns about crude supplies from Iran pushed U.S. light sweet crude oil for July delivery up 38 cents to settle at $69.88 a barrel. For the week, July crude was down 2.4 percent.
Iran's President Mahmoud Ahmadinejad called a proposal by the West to defuse the standoff over Tehran's nuclear work a step forward, but gave no sign when an answer would come.
On the earnings agenda next week, Circuit City Stores Inc., Oracle Corp., FedEx Corp. and Morgan Stanley are scheduled to report.
Oracle, a business software maker, reported late Thursday preliminary results ahead of its official release next week, showing that fourth-quarter earnings before items came in at 29 cents per share, higher than a previous company forecast of 26 cents to 28 cents.
Forecasts have been a little bit to the negative side, Brorson said. It's still early yet, but I think the downgrades to upgrades are a little heavier than normal.
In the tech world, outside of Oracle, tech still has some issues in terms of fundamentals and earnings, he said. (Wall St Week Ahead runs weekly. Any questions or comments on this column can be e-mailed to: caroline.valetkevitch(at)reuters.com) (Additional reporting by Ellis Mnyandu)