US stock investors will sift through reams of economic reports, including July payrolls and second-quarter gross domestic product, as they search for catalysts next week that could trigger a recovery on Wall Street.
With worries about the impact of the housing slump on the economy and the profit outlook keeping stocks in a bear market, data that points to strong growth will help put investors on firmer footing. Next week's data will come on the heels of separate reports on Friday showing US consumer sentiment rebounded in July from a 28-year low and business inventories rose unexpectedly last month. Data also revealed that June new-home sales were not as weak as expected, helping to dispel the gloom – and lift the market.
An added incentive for investors may come from a further drop in the price of oil, now below $124 a barrel – levels last seen in early June.
But even if next week's economic reports help fuel optimism, there probably will still be plenty of concerns about whether the financial sector has seen the worst of the credit crisis.
The government's plan to bolster the nation's mortgage finance companies Fannie Mae and Freddie Mac brought calm last week on Wall Street, but a sense of "all clear" still eluded the market. The main event on the crowded data calendar will come on Friday, when the Labor Department releases July's payrolls report, and the Institute for Supply Management gives its July reading on the manufacturing sector.
Domestic car and truck sales for July are also set for release throughout the day.
"Unemployment jumped to 5.5 per cent recently, so if we get another tick up and another month of job losses, it will just reinforce the negative long-term loop we're in," said Joseph Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania.
But before that, investors will have to scour through thickets of other crucial numbers. Consumer confidence is set for release on Tuesday by the Conference Board, a private New York-based research group.
Earnings will keep streaming in from marquee names, including Exxon Mobil Corp, Walt Disney, Verizon and Starbucks Corp.
The government's advance reading on second-quarter GDP is due out on Thursday, along with a barometer of business activity in the US Midwest from the National Association of Purchasing Management-Chicago.
"The jobs number historically has a big impact on the market, but I think a lot of people will also pay a lot of attention to the GDP number as there's been a lot of debate about whether we're in a recession or not," said Cleveland Rueckert, market analyst at Birinyi Associates Inc in Stamford, Connecticut. A loss of 75,000 jobs in July is forecast by economists polled by Reuters. In June, US non-farm payrolls shed 62,000 jobs. The unemployment rate is forecast to rise to 5.6 per cent in July from 5.5 per cent in June.
Second-quarter gross domestic product, which is the output of goods and services within US borders, is expected to have grown at an annual pace of two per cent. First-quarter GDP was reported to have grown at an annual rate of one per cent.
The uneasiness about the financial sector was apparent on Friday as sliding shares of major banks, including Bank of America and Wachovia, kept a lid on a broader market advance.
For the week, the Dow Jones industrial average fell 1.1 per cent and the Standard & Poor's 500 Index slipped 0.2 per cent. In contrast, the Nasdaq Composite Index gained 1.2 per cent.
For the year to date, the Dow is down 14.28 per cent, the S&P 500 is down 14.34 per cent, and the Nasdaq is down 12.89 per cent.
Ratings agency Standard & Poor's said it may cut the subordinated debt and preferred stock ratings of Fannie Mae and Freddie Mac, tempering some of the optimism generated by better-than-expected June new home sales and and a stronger-than-expected reading in a gauge of consumer sentiment.
Fannie Mae and Freddie Mac are the two government-chartered companies that own or guarantee nearly half of the $12 trillion (Dh44trn) in outstanding US mortgage debt. Together, they have lost billions of dollars on bad home loans.
"It is probably too soon to think that the economy is turning around.
"There is still a lot of weakness, a lot of uncertainties. Financial markets are still obviously very unstable," said Anna Piretti, senior economist at BNP Paribas, in New York.
On Friday, a sweeping bill to aid the battered US housing market and help bolster the mortgage finance system cleared a procedural hurdle in the Senate, setting it up for a Saturday vote.
The drop in crude oil prices on Friday to a seven-week low helped the stock market, but it was not enough to completely overcome investors' hesitation about the financial sector.
The bursts of buying that drove the rallies on Tuesday and Wednesday happened so fast that they could not be viewed as a signal that stocks were ready to shift up and away from the bear market, analysts said.
"The thing that we're looking for in the market is longer-term buying, so when you see stocks move up quickly, that's worrying," said Cleveland Rueckert, market analyst at Birinyi Associates in Stamford, Connecticut.
He noted that the advance that financials notched early last week had quickly dissipated. "What will be best to move out of the bear market is sustained, steady buying that is characteristic of a bull market." Rueckert said he expected "a more sideways trading in oil, between $120 and $130 a barrel."
"The principal focus is clearly on what I would call the unwinding of the oil bubble, and as that goes, so goes the outlook for the economy," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.
This week's engagements by key officials of the US Federal Reserves are thin, with only Federal Reserve Board Governor Frederic Mishkin scheduled to speak on the Fed's communications strategy in Washington tomorrow.