Last week's heavy stream of economic news was largely encouraging, and yet stocks barely eked out gains after oil prices spiked to levels not seen in more than two-and-a-half years. With a relatively light slate of economic data scheduled this week, oil prices and political instability could play an even larger role in the trading sessions ahead, says Kenny Polcari, managing director at ICAP Corporates.
"There's not a whole lot of heavy macro data, so what I think you're going to see is much more concentration on the geopolitical," the veteran New York Stock Exchange (NYX) trader says. "What's going on in the Mideast, what's going on with oil and food prices, I think that's what people are going to be looking at this week."
Thursday brings the regular weekly initial jobless claims numbers, and on Friday traders will get monthly retail sales and the Reuters/University of Michigan consumer sentiment index. But it's unlikely that those figures could be bigger catalysts than last week's spate of encouraging economic news, Polcari says.
After all, the Institute for Supply Management indexes were strong, factory orders accelerated sharply, the unemployment rate dropped to a two-year low -- and yet the equity markets managed just the narrowest of gains. The Dow Jones Industrial Average ($INDU) rose 0.3% on the week, while the S&P 500 ($INX) and Nasdaq Composite ($COMPX) each inched up 0.1%.
That's because oil prices nearly overshadowed everything positive -- and could continue to do so for some time. Benchmark crude oil futures traded on the Comex division of the New York Mercantile Exchange (CME) rose nearly 7% last week to close above $104 a barrel. With the Federal Reserve's second round of quantitative easing set to end in June, Wall Street is concerned about the economy's ability to stand on its own, especially if energy prices don't cool off.
"The numbers from last week were very good, and so going into this week you get the sense that the recovery is really happening and people are feeling good," says Polcari. "But I think what you really have to start paying attention to is [the recovery] really going to be sustainable? Can it really be sustained with oil at $100-plus a barrel?"
And, lest we forget, the European debt crisis hasn't gone away, turmoil in Libya continues to churn and worries abound across the Middle East, Polcari says.
"On Friday, we've got this scheduled protest in Saudi Arabia called a Day of Rage," says Polcari. "There is very high unemployment in that country among young educated Saudi men and women, and so it's something they are very concerned about."
For more on Polcari's take from the floor of the NYSE, see the video above.