Inflation Data Looms

Two key readings on inflation will be released Thursday and Friday.Should there be a pronounced uptick in the core Producer Price Index(PPI) and Consumer Price Index(CPI),stocks may be expected to decline.Any such indication that the Federal Reserve will be more likely to raise interest rates in order to rein inflation in,will bring the bears out in force,resulting in a wave of selling.Stocks are already under pressure from a rise in government bond yields.One approach to this danger is to keep new money in money market funds through at least the weekend.

Bond Rates Climbing

As treasury bond yields near 5%,many are wondering if stocks will decline as a consequence.Investors could settle for the certainty of the bonds,rather than the bumpy ride of a stock.Ten year government bond rates are rising worldwide.The U.S. ten year is at a nine-and-a-half month high.Charlie Smith of Fort Pitt Global Group says corporate earnings are driving bonds up,but they will not be attractive below 5.75%.Smith Barney's John Manley thinks rates are probably finding their top now.If they do crest 5%,though,this will eventually harm the stock market.

Correction Forecast

What does the summer hold for Wall Street?There is a widespread belief that the market is in for another 5-10% correction in the near future-similar to what happened in February.It has just been too hot recently.Bolstered by liquidity,mergers and acquisitions rather than fundamentals,it is on thin ice.The slightest jolt could send it into freefall.Investors must double-check for quality and diversity in their holdings,if they hope to weather the nearing storm.

Alcatel-Lucent Upgraded

Alcatel-Lucent(ALU),the Franco-American telecom colossus,has been upgraded to "outperform" by Credit Suisse.ALU's first quarter as a merged corporation was a difficult one.Although the company sustained a net loss of 8 million euros(10.8 million dollars),its cost-cutting plans impressed Credit Suisse.Alcatel-Lucent is one of the most actively traded stocks.Its CEO,Patricia Russo,sees revenue growth for the rest of the year,based on a good flow of orders.

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Alcoa Courts Alcan

In the world of mining and minerals,consolidation is king.That is why Alcoa(AA) is courting its Canadian rival Alcan.It would be the second-largest deal ever in the sector.Alcoa is offering 73.25 a share,plus stock.The total value of the deal is thirty-three billion in cash,stock and debt.According to Alcoa,the transaction would result in one billion in savings.Alcoa recently closed a plant in Frederick County,Maryland because of its inability to find cheap electricity.To satisfy Canadian regulators,the company would maintain headquarters in both New York and Montreal.

Recession Haunts Wall Street

As Wall Street looks forward to summer,it has warnings of recession in its face.David Rosenberg,Chief North American Economist of Merrill Lynch,points out some startling signs of a downturn.For the past four quarters,the U.S. economy has registered annualized growth of less than 3%.In the past sixty years,this has always foreshadowed recession.Similarly,the Conference Board's Leading Economic Indicators have declined on a year-to-year basis for three straight months.Every time it did that for the past fifty years-except in 1967-recession followed.Jim Hatzius,Chief U.S. Economist of Goldman Sachs,thinks there is a 25% chance of recession,citing the housing downturn as a burden on the economy.It would seem wise,then,to augment defensive holdings such as consumer staples and health care.