Week Ahead: Investment Bank Firing Line

Our "Week Ahead" piece is the most comprehensive market-moving event planner available.

Last week's earnings warning by Lehman Brothers (NYSE: LEH) was likely devised to save the firm from a similar fate to its now nonexistent peer Bear Stearns. However, trading momentum just kept building and LEH ended the week down 20% anyway. Lehman will now offer its full report Monday, followed on the firing line by several of its banking peers.

With as much uncertainty for stocks now as at any time over the past year, the investment bankers' news could offer the right catalyst to send the market through the shaky technical base at 1,350 for the S&P 500. Otherwise, less than disastrous data could offer firmer footing.

In either event, we expect the market will wake up to reality over time, after initially interpreting last week's CPI report positively. The market somehow found a bright side to one of the toughest price increases in recent times, as the headline measure rose 0.6%. Market optimists instead focused on the Core CPI data point, that which excludes food and energy prices. The fictional "core" gauge only rose 0.2% in May. Look for our inflation article later this week, as we'll delve into the details and offer our color on the topic.

Last Week

We passed the test. The market had an important check up this past week, and passed thanks to a rally on Friday. Historically, the midpoint of stock market trough to rally peak has proven an important threshold for price support. That midpoint this time around was 1,350 on the S&P 500 Index.

While we drifted below 1,350 on Wednesday, the market came up for air on Thursday and broke clean free of the water line on Friday, closing exactly where it started the week, at 1,360. It was an important exam, and we view it also significant that the close of the week offered hope. It seems to signal institutional conviction in the stability of that threshold. That said, news flow could prove the technicals worthless this week just the same.

On the week, crude futures for July delivery traded extremely choppy, and couldn't seem to make up their mind on which direction to go. Trading in a seven-dollar span, oil ended the week only about a dollar off where it started, at $136.66. The dollar, however, was more decisive on the week, strengthening to about $1.54 per euro.

The Week Ahead

As if the stock market was not frightening enough these days, this past Friday the 13th will be followed up by a Quadruple Witching this Friday. The week ahead looks like a quiet one on paper though, but you never know what surprises may lay in hiding. The biggest catalyst of the week looks to be the earnings reports of key financial institutions that are scheduled to follow this past week's warning from Lehman Brothers (NYSE: LEH).

Monday

The economic schedule includes fresh regional manufacturing data from the Empire State Manufacturing Survey on Monday. The New York area report is expected to show contraction again this time around, as Bloomberg's consensus expects a reading of -0.5, versus -3.2 in May.

Treasury International Capital is also set for Monday morning. TIC measures the degree of foreign investment in long-term U.S. securities. Capital flow has been increasing throughout the year, topping at $80.4 billion in March, but the dollar and bond market are more likely to react to this data than stocks are.

We suspect the Housing Market Index could top May's weak showing of 19, as it potentially benefits from seasonal uptick over a historic trough. Fed Chairman Bernanke speaks at a Senate Finance Committee conference on health-care reform. On the same day, Richmond Fed hawk Jeffrey Lacker addresses the economic outlook.

Kirk Kerkorian and his 5.6% stake is set to meet with several key executives of his favorite automaker, Ford Motor (NYSE: F). We expect America's biggest family owned company will try to figure out how to get Kirk best off their backs. Seems a lot like paying off North Korea to stop its nuclear program doesn't it... The strategic planning behind the meeting is probably similar anyway.

Electronic Arts' (Nasdaq: ERTS) bid for fellow game-maker Take Two Interactive (Nasdaq: TTWO) is scheduled to expire on Monday. Markets in Argentina are closed, but our limited earnings schedule includes important reports from Lehman Brothers (NYSE: LEH), Adobe Systems (Nasdaq: ADBE), La-Z-Boy Inc. (NYSE: LZB), Majesco Entertainment (Nasdaq: COOL), Meade Instruments (Nasdaq: MEAD), Motorcar Parts of America (Nasdaq: MPAA), OMNOVA Solutions (NYSE: OMN), Tegal Corp. (Nasdaq: TGAL) and Titan Machinery (Nasdaq: TTTN).

Tuesday

Housing Starts are set for Tuesday, with expectations for a pace of 985K starts in May (1.032 mln. in April). We think there's a possibility to see the continuation of trend we've already forecast correctly across other housing metrics. More specifically, the spring seasonal boost could lift May results over the dramatic trough levels of April.

The Producer Price Index (PPI) follows up last week's CPI Report, and the consensus is looking for a 1.0% rise in the headline measure for May, and 0.2% increase less food and energy. "The Greek" is increasingly concerned about the flow-through of price increase, and we anticipate publishing an article on this topic later this week.

As manufacturing teeters on the cliff's edge, Industrial Production for May is due for report. Production is actually seen increasing 0.1% this time around, versus a 0.7% decline in April. Capacity utilization is expected to hold its ground at 79.7% as we expect consolidation of overall capacity helps to offset the impacts of layoffs and shift reduction. Not the best savior of utilization...

The State Street Investor Confidence Index is set for Tuesday release, and will have a tough time comparing against May's improved measure of 81.0. The International Council of Shopping Centers, a useful measure of consumer confidence, gets its regular notation. Last week's result benefited again from stimulus distribution, as weekly same-store sales rose 1.8% over last year's level.

The first quarter Current Account is due on Tuesday, and we expect the effect of pricier imports (read oil) will find greater counter weight from lighter domestic demand and increased international demand for cheaper U.S. goods. This should lead to a net narrowing of the deficit.

Corporate news looks heavy for Tuesday, with the Merrill Lynch Global Transportation Conference kicking off in New York (NYSE: MER). Also, Freescale Semiconductor (NYSE: FSL) and Mattel (NYSE: MAT) are scheduled to meet with analysts.

With cigarette in mouth, blindfolded Goldman Sachs (NYSE: GS) takes its position on the firing line. However, Goldman has been a stubborn operational outperformer to date. The remainder of the earnings slate includes Best Buy (NYSE: BBY), Asure Software (Nasdaq: ASUR), Cascal NV (NYSE: HOO), Clarcor Inc. (NYSE: CLC), Factset Research Systems (NYSE: FDS), Gold Reserve (AMEX: GRZ) and Tata Communications (NYSE: TCL).

Wednesday

Wednesday offers its two regular reports and not much else. The Mortgage Bankers Association's weekly tally of mortgage origination activity should show a decrease due to significant recent interest rate rise. The stench of inflation no longer requires a bloodhound to identify.

The EIA has consistently reported draws from inventory over recent weeks, but the Saudi's are reportedly picking up production. The question is though, will strategic reserve filling (hoarding) across major user nations simply pick up pace. Iran is not a mere speculative theory; we believe it's a near-term reality that is secret only to the naive majority.

Next in line to be shot, I-bank Morgan Stanley (NYSE: MS) headlines the earnings schedule for Wednesday. Also look for news from FedEx (NYSE: FDX), American Software (Nasdaq: AMSWA), CarMax (NYSE: KMX), Casella Waste Systems (Nasdaq: CWST), Commercial Metals (NYSE: CMC), Culp Inc. (NYSE: CFI), Healthways (Nasdaq: HWAY), IHS, Inc. (NYSE: IHS), Lindsay Corp. (NYSE: LNN) and Somanetics (Nasdaq: SMTS).

Thursday

Look for Weekly Initial Jobless Claims to reach 375K this week, according to economists, compared to 384K last time around. Also due on Thursday, Leading Economic Indicators are seen unchanged in May. The Philadelphia area manufacturing measure is due, and expectations are for a poor reading of -10.0. The National Governors Association issues its biannual fiscal survey, offering us more insight into the state of local economies. The EIA Natural Gas Report wraps up Thursday's economic schedule.

The corporate news slate is quite heavy Thursday, with analyst/investor meetings scheduled at Biogen Idec (Nasdaq: BIIB), MetLife (NYSE: MET), Aeropostale (NYSE: ARO), McKesson (NYSE: MCK), Western Union (NYSE: WU) and Cadbury (NYSE: CBY). Also, you should remember that huge contract (for refueling tankers) Boeing (NYSE: BA) lost to Northrop (NYSE: NOC) and EADS. Boeing got salty after losing that long-standing deal, and filed a complaint against the Air Force. Well, the Government Accountability Office is set to rule on the case on Thursday.

On the earnings slate, look for Carnival Corp. (NYSE: CCL), Circuit City (NYSE: CC), Command Security (AMEX: MOC), Gerber Scientific (NYSE: GRB), J.M. Smucker (NYSE: SJM), Logility (Nasdaq: LGTY), Progress Software (Nasdaq: PRGS) and Smart Modular Technologies (Nasdaq: SMOD).

Friday

It's Quadruple Witching on Friday, which is actually less a cause for superstitious concern than last Friday the 13th, though still a reason to worry since options, index options, futures and index futures contracts expire on the same day. As if that was not enough, it's also the day before S&P's reshuffling of its indexes. On the other side of the world, Treasury Secretary Paulson is set to discuss inflation and the dollar with representatives of the Group of Eight in Japan.

Sprint Nextel (NYSE: S) will introduce what's been called the iClone, the Samsung Instinct. You can get your early preview of the Instinct right now, by viewing the video we included in our Week in Review - On Shaky Ground" video collage. The only earnings report for the day is that of recreational vehicle maker Winnebago (NYSE: WGO).

We hope you find use of our weekly planner all week long, and invite you to read our daily insights as well.

Please see our disclosure at the Wall Street Greek website. Article also interests: AMEX: DIA, AMEX: DOG, AMEX: SDS, AMEX: SPY, AMEX: QLD, Nasdaq: QQQQ.