Market to Focus on Presidential Debate, Consumer Data

NEW YORK – The first U.S. presidential debate next week and a load of data on consumer spending will settle some questions that have been hanging over U.S. stocks, and equity strategists and traders say the decreased uncertainty could draw buyers back to the market.

In the coming days, investors expect greater clarity on a variety of issues, and near the top of the list is a clearer sense of who will be the next U.S. president.

Upcoming data also will provide a better sense of consumer spending, which accounts for two-thirds of U.S. economic activity, and the impact of higher energy costs on American wallets.

Still, they caution, the market's direction will remain subject to longer-term price trends in the crude oil market.

The market has been held back this year by oil prices and other factors, and the third-quarter performance is telling.

Barring a rally in the first four days of the week, the market will log its first losing quarter since the first three months of 2003, when the Dow Jones Wilshire 5000 index (search) fell 3.5 percent. On Friday, the broad market gauge was down about 2.6 percent from its June 30 level.

Also influencing investor thinking in coming days will be earnings from several consumer products companies, notably beverage company PepsiCo. (PEP).

The first of three face-to-face presidential debates is scheduled for Thursday, Sept. 30, in Coral Gables, Fla. That will be followed by debates scheduled for Oct. 9 in St. Louis and Oct. 13 in Tempe, Ariz. Next week's exchange will focus on foreign policy and homeland security.

"There is going to be sideways trade until the election, which is not that far away, or at least until the first debate is out of the way," said Michael Murphy, managing director of trading at Wachovia Securities. "Until then, it is hard to get anybody to take their wallet off their hip and put money to work."

"Next week, we'll see if the economy is back on track, which is what we think," said Doug Sandler, Wachovia's chief equity strategist. "The two sides of the debate are: we are headed back to recession, or we are just in a soft patch."

The busy data calendar opens up with August new-home sales, which are forecast to come in at an annualized 1.165 million compared 1.134 million in July.

The September reading of consumer confidence by the Conference Board (search), due out on Tuesday, is expected to come in at 99, up from the August level of 98.2.

For the big picture, the final numbers on second-quarter U.S. gross domestic product (search) are due out on Wednesday. A median forecast of economists polled by Reuters expects an annualized growth rate of 3.0 percent, compared with an earlier reading of 2.8 percent. In the first quarter of 2004, the U.S. economy grew at an annualized rate of 4.5 percent.

On Thursday, the market will get a close look at consumer income and spending when the U.S. Commerce Department announces August personal income data.

The data is expected to show a 0.3 percent rise in personal income last month, versus a 0.1 percent gain in July. Personal consumption is predicted to edge up 0.1 percent, compared with a rise of 0.8 percent in July.

The Institute for Supply Management's (search) purchasing management index for September is due on Friday, Oct. 1, the first day of the fourth quarter. A Reuters poll forecast 58.0, down from 59.0 in August. A figure above 50.0 indicates economic expansion.

As for company fundamentals, Wall Street has been fretting recently about the upcoming earnings season. Profit growth rates in the third quarter are expected to look weak against the recent three straight quarters of 20-percent-plus growth, analysts say.

Morgan Stanley strategist Henry McVey pointed out in a research note on Wednesday that earnings revisions from Standard & Poor's 500 companies have turned negative, so the number of downward revisions now exceeds those moving up.

The preannouncements over the last 30 days "recently switched polarity, dipping into negative territory for the first time since July 2003."

The sector leading the way lower with the largest share of estimate cuts has been consumer staples, traditionally considered a safe haven.

So close attention will be paid to PepsiCo. when it releases its earnings on Thursday, particularly after key competitors Coca-Cola Co. (KO) and Cadbury Schweppes Plc recently offered downbeat forecasts.

Other consumer product companies reporting results in the coming days include Clorox Co. (CLX) on Tuesday, spice company McCormick & Co Inc. (MCK) on Wednesday and beer and wine distributor Constellation Brands Inc. (STZ) on Thursday.

For the week, the Dow Jones industrial average fell 2.3 percent to finish unofficially at 10,047, and the Standard & Poor's 500 gave up 1.6 percent to end at 1,110.1. The Nasdaq composite lost 1.6 percent, closing at 1,879.5.