NEW YORK – U.S. stocks may be set for another volatile week, when the July jobs report and other economic data could help determine the outlook for interest rates.
More earnings will pour in, with results expected from such household names as Verizon Communications Inc. (VZ), Avon Products Inc. (AVP), Hilton Hotels Corp. (HLT), Cigna Corp. (CI), Procter & Gamble Co. (PG) and Starbucks Corp. (SBUX). All belong to the Standard & Poor's 500 Index, while Verizon and Procter & Gamble also are among the 30 components in the Dow. And Starbucks is one of the Nasdaq's most recognizable members.
Stock investors will drill into the profit and outlook figures, with those exceeding Wall Street's expectations likely to set off some buying — and possibly a rally. Disappointments, of course, are seen as a reason to sell.
But the U.S. economy will get more scrutiny from Wall Street as reports on the labor market, the manufacturing and services sectors, factory orders, personal income and spending will be on tap. And an inflation gauge closely tracked by the Federal Reserve also will be in the spotlight, analysts said.
The economic data may attract even more attention than usual since this will be the last full trading week before the Fed's next policy-making meeting on Aug. 8.
"It is no secret. The market knows the Federal Reserve's top three priorities are inflation, inflation, inflation," said Anthony Chan, chief economist of JPMorgan Private Client Services in New York.
Tension in the Middle East may still weigh on the markets. The conflict between Israel and the Hezbollah guerrillas in Lebanon, which began on July 12, drove U.S. crude oil futures up to a record $78.40 a barrel two weeks ago.
U.S. crude oil for September delivery settled Friday at $73.24 a barrel, down $1.30 for the day, and down 1.6 percent for the week.
Will This Rally Have Legs?
The drop in oil and a government report showing the U.S. economy slowed more than expected in the second quarter, helped spark a rally in stocks Friday.
Gross domestic product grew at an annual rate of 2.5 percent from April through June after a blistering pace of 5.6 percent in the first quarter, the Commerce Department said in its first assessment of GDP growth during the second quarter. Economists had forecast a second-quarter GDP growth rate of 3 percent.
Analysts said the weaker-than-expected GDP numbers suggest the Federal Reserve may pause in its campaign of raising interest rates, which touched off Friday's rally.
"The question now is whether this rally in stocks can be sustained in coming weeks," said Michael Metz, chief investment strategist of Oppenheimer Holdings Inc., in New York. "It will depend on earnings, consumer confidence and on the inflation rate. August may be a volatile month for stocks."
For the week, the Dow Jones industrial average gained 3.23 percent, the Standard & Poor's 500 index rose 3.08 percent, and the Nasdaq Composite Index shot up 3.65 percent.
Factories, Spending and Jobs
The heavy economic agenda next week starts with a reading of regional manufacturing activity Monday, with the release at 10 a.m. EDT of the Chicago PMI report.
The National Association of Purchasing Management-Chicago's index, also known as the Chicago PMI, probably showed that business activity in the U.S. Midwest expanded again, but at a slower pace, according to economists polled by Reuters. They expect a July reading of the Chicago PMI at 56, down from 56.5 in June. A reading above 50 indicates expansion.
Tuesday, a report on personal income and personal consumption, or spending, for June will be released at 8:30 a.m. EDT . The Reuters poll forecast: Personal income is seen up 0.6 percent in June after a gain of 0.4 percent in May, while personal consumption is forecast to rise 0.4 percent in June, matching May's 0.4 percent gain.
All eyes on Wall Street will be on the core Personal Consumption Expenditures Index, also known as the core PCE Index, which is one of the Fed's most closely watched measures of inflation. The core PCE Index is predicted to rise 0.2 percent in June, after a gain of 0.2 percent in May, according to the economists polled by Reuters. The core reading excludes volatile food and energy prices.
The Fed and the markets "will be looking at core PCE and the average hourly earnings component of the payrolls report," said Chan of JPMorgan.
U.S. domestic car and truck sales for July, which will be released throughout the day Tuesday, are expected to have picked up speed from June, according to the Reuters poll.
The Institute for Supply Management's index of U.S. manufacturing activity, due at 10 a.m. Tuesday, is expected to dip to 53.7 in July from June's 53.8.
The ISM's index on non-manufacturing, or services, activity in the United States will be released Thursday, also at 10 a.m. . The forecast: 57.0 in July, the same as it was in June.
Also Thursday, a report on factory orders may show a rise of 0.9 percent in June after a gain of 0.7 percent in May, according to the Reuters poll. This report is due at 10 a.m. .
The week wraps up Friday with the U.S. nonfarm payrolls report for July, due at 8:30 a.m. . The U.S. economy likely added 150,000 jobs in July, up from 121,000 in June, according to economists polled by Reuters. The unemployment rate is pegged at 4.6 percent in July, the same as in the month before.
Average hourly earnings probably rose 0.3 percent in July, the Reuters poll showed, after a 0.5 percent gain in June.
Great Expectations for Earnings
Earnings expectations for the second quarter climbed in the latest week, with Reuters Estimates now projecting that Standard & Poor's 500 companies' profits grew 11.7 percent in the second quarter from the year-ago period — up from a growth forecast of 10.7 percent last week.
The number is expected to hit 12.5 percent once all S&P 500 companies have reported.
Next week, some of the largest S&P 500 companies reporting results will include Procter & Gamble, Prudential Financial Inc. , Time Warner Inc. and Starbucks.
Earnings "have been better than we expected," said Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc. in St. Louis. "But the market may continue to focus on the misses, while a lot of companies are still turning in good results."