Economic and earnings reports will test market’s momentum
As September’s surge fades into a fond memory, the question for the U.S. stock market is: Now what?
The market shook off the summer doldrums last month, breaking out of a stubborn trading range and giving investors the second-best September on record with a gain of 8.8% on the S&P 500. It also racked up its best quarter in a year.
The strength of that momentum will be tested this week by a round of economic data, including the much-watched nonfarm payrolls report, as well as the start of third-quarter earnings season.
September nonfarm payrolls, due Friday, are forecast to remain unchanged after a loss of 54,000 jobs in August, according to a Reuters poll of economists. However, the forecast range is wide, with a gain of 106,000 jobs on the upside and a loss of 75,000 jobs on the downside.
Analysts will be parsing comments from chief executives and other corporate talking heads as their companies release quarterly results to gauge how executives see the recovery unfolding. Investors have become more optimistic over the strength of the recovery in the last month as worries of a return to recession have faded.
“I’m looking for companies to say things are not falling off a cliff. They’re not rapidly improving, but we’re starting to see this moderate, sustainable growth,” said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia.
Alcoa Inc. marks the unofficial start to earnings season when it reports quarterly results Thursday. Other companies releasing results this week include Yum Brands Inc., Costco Wholesale Corp., Monsanto Co., Micron Technology Inc. and PepsiCo Inc.
On the economic front, pending home sales and factory orders for August kick off the week. Pending home sales are expected to rise 3% after a 5.2% increase the month before, while factory orders are expected to dip 0.4% from a gain of 0.1% the previous month.
The Institute for Supply Management’s September index for the non-manufacturing, or services, sector is expected to show a reading of 52, up from 51.5 the month before. The ISM services index will come out Tuesday.
Wednesday will bring the Automatic Data Processing Inc. jobs report for September, a precursor to the government’s larger employment report for the month. The ADP data is forecast to show the private sector added 22,000 jobs last month.
And finally, wholesale inventories for August are expected to rise 0.5%, compared with 1.3% the month before. That data will come out at mid-morning Friday.
