Look for stocks to advance in the holiday-shortened week ahead if economic figures show the U.S. economy expanded in August. But the market could swing in the opposite direction if the numbers disappoint.
"Just keep your fingers crossed that the reports are consistent with the view that the economy continued to expand in August," said Hugh Johnson, chief investment officer at First Albany Corp. "That will determine the outcome for the markets for the entire month of September."
September historically is a tough month for the stock market. The Dow Jones industrials declined 32 times in the past 51 Septembers since 1950, according to the Stock Trader's Almanac 2002.
No major earnings reports are scheduled for release next week, with U.S. markets closed for the Labor Day holiday Monday. But a positive tone could be set if the week's data on the manufacturing sector, car and truck sales, and employment shows the U.S. economy avoided a contraction in August.
"This has been anything but a typical year, so maybe we don't have a typical September," said Bryan Piskorowski, market commentator at Prudential Securities. "Economic releases will be the focal point."
Closing out August, U.S. stock markets struggled on notably weak volume as investors took vacation ahead of the Labor Day weekend. For the week, the Dow Jones industrials declined 2.36 percent, breaking a five-week winning streak. The Nasdaq composite ended its three-week run higher, closing off 4.75 percent. The benchmark S&P 500 Index declined 2.63 percent for the week, ending five straight weeks of gains.
"The stock market I think is trying to find a way to grind its way higher," said Charles White, president of investment firm Avatar Associates. "In the absence of bad news ... in general, there's a feeling that there's money that's willing to go back to work in the marketplace.
Investors yanked their money out of U.S. stock mutual funds in July, with withdrawals hitting a record $52.6 billion, industry trade group Investment Company Institute said Friday. But with the market having stabilized in August, research firms are estimating smaller outflows from stock funds.
ECONOMIC DATA KEY
Wall Street will get a reading on the state of U.S. manufacturing, which makes up one-sixth of the economy, when the Institute for Supply Management releases its monthly manufacturing index Tuesday. In July the index fell to 50.5, its lowest level since January. Analysts expect the index to come in at 51.6 for August, according to a Reuters poll.
On Wednesday, August car sales and truck sales roll in. Economists polled by Reuters are expecting auto makers to report 6.2 million in car sales and 7.9 million in truck sales.
"Auto sales give you a sense of what consumer spending did," Johnson said.
Economists watch consumer spending closely because it makes up two-thirds of economic activity. In recent months, consumers have continued to spend freely, with robust July auto sales and new home sales hitting a record.
August unemployment figures will be released Friday.
"The health of the labor market is critical input into the whole issue of consumer spending," said Bruce Simon, chief investment officer of Glenmede Trust Co. which manages $14 billion in assets. "That is one of the key factors in support of the modest rebound we're experiencing."
In July, a scant 6,000 new jobs were generated as firms kept a tight rein on hiring. While the unemployment rate was unchanged in July from the June level of 5.9 percent, the gain in the number of jobs was far below economists' expectations.
For August, economists are expecting the unemployment rate unchanged and for 37,000 new jobs to be created.
With more traders back at their desks next week to digest the data, analysts expect the market to be a bit more jumpy, with a rise in both volume and volatility.
"With every number, you're going to see big swings," Johnson said, especially a swing to the downside if reports are disappointing.
BOTTOM SEARCHING FOR TECH
Even if next week's economic data is positive, Glenmede Trust's Simon said the stock market will maintain a negative bias and tech stocks will remain under pressure.
"We've heard from several companies that indicated that demand is coming in weaker than expected," he said. "We don't see any evidence that we're at the bottom yet in tech."
But the pickings -- in any sector -- are slim.
"It's hard to find stuff to buy because everything's got some sort of a negative story associated with it," Simon said.
But other analysts disagree, expecting tech stocks to take a breather from their downward trajectory and advance.
"We're going to hope that ... we'll get a little rally going in some of these tech stocks because they're right down at their lows," said Frank Gretz, market analyst and technician for Shields & Co., a brokerage in New York. "IBM should get going next week. Intel ain't going to turn into an IBM but it should hold its low."
But whatever direction the market takes, Gretz will be happy to have people back at their desks to react to the news.
"We've all kind of been frustrated by this lack of volume," he said. "It's been real hard to read a lot into the market just because the volume has been so light."