NEW YORK (CNN/Money) -
When Wall Street gets back to work this week after a long vacation, it will find an e-mail box full of spam and a lot of news through which to sift.
The strength of the economy and corporate earnings will likely be the main focus for stocks this week, though there could be plenty of distractions and very little hard news. [For a list of this week's key events, click here.]
Last week, on some of the lightest trading of the year, the Dow Jones industrial average posted its fourth straight weekly gain, rising 0.6 percent, and the S&P 500 gained 0.5 percent for its fourth straight gain. But the Nasdaq fell nearly 1 percent, dragged down by a surprisingly bad mid-quarter update from tech bellwether Intel (INTC: Research, Estimates).
Since hitting their lowest levels of the year in early August, the Dow and the S&P have both gained about 5 percent. The Nasdaq has bounced, too, but that recovery seemed to be in jeopardy after Intel slashed its sales forecasts.
And the pain may not be limited to the tech sector. Just as businesses and consumers weren't buying semiconductors, they weren't buying other stuff, either.
Wal-Mart (WMT: Research, Estimates) cut its sales forecast for August, while General Motors (GM: Research, Estimates) and Ford (F: Research, Estimates) reported lousy sales and cut production.
"The market's focus is going to the implications of what the tech and retail numbers mean," said Tony Dwyer, equity market strategist at FTN Midwest Research. "They've created a lot of angst as to whether there will be ... more significant [signs of] a slowdown."
Still, Dwyer suggested that much of the bad news was anticipated by the market during a mid-summer sell-off.
"There's a good bit of pessimism built into the market here, and we've had a nice bounce off the lows, so we could go sideways for a while," he said.
Typically, September is the worst month of the year for stocks; mutual funds dump their losing stocks at the end of the fiscal year, and some companies discover they've run over budget and cut spending. Many investors will reshuffle their portfolios.
Some analysts believe this September could be different, however. For one thing, election-year Septembers are typically positive. If Iraq settles down or oil prices fall, or if President Bush -- Wall Street's favorite horse in the November presidential race -- seems to gain ground on his challenger, John Kerry, (D-Mass.), then stocks could gain steam.
"There are a combination of forces which could be positive, on net," said William Hummer, market strategist at Wayne Hummer in Chicago. "The market's been held hostage by the election and Iraq, and those may at least temporarily fade as preoccupations if better economic news takes hold."
But most of the economic news lately hasn't been all that great. The ISM's manufacturing and service-sector indices were both worse than expected in August, while consumer incomes and mortgage applications fell.
Friday's job report, which was almost as good as Wall Street expected -- a rarity lately -- took some of the edge off. But it also made the chances of an interest-rate hike from the Federal Reserve on Sept. 21 pretty much a sure thing.
"The August payroll employment report has likely reinforced the Fed's faith in their view that the recent weakness is nothing but a 'soft patch,'" Goldman Sachs economists said in a note on Friday.
Fed officials, including Chairman Alan Greenspan, come out in droves this week to talk about the economy and send flashing neon signs to Wall Street about what they'll do with a key overnight lending rate that affects other borrowing rates throughout the economy.
They'll likely say the economy is hunky-dory, meaning they'll probably raise rates on Sept. 21. But Wall Street already knows that: the implied yield on the fed funds futures contract, one way to check market expectations of Fed policy, is pricing in a 100-percent chance that the Fed will raise its target for the fed funds rate by a quarter percentage point, to 1.75 percent.
Key events in the week ahead:
- Tuesday afternoon, Dallas Fed President Robert McTeer will speak in Dallas about the economy.
- Wednesday morning, beginning at about 10:30 a.m. ET, Fed Chairman Alan Greenspan testifies before the House Budget Committee about the state of the economy.
- Wednesday afternoon, the Fed will release its sixth "Beige Book" report of the year. The report compiles anecdotal evidence of economic activity in each Fed district, and policy makers use it when deliberating about their target for short-term interest rates.
- Thursday morning, the Labor Department reports on new claims for unemployment benefits in the week ending Sep. 4. Claims jumped to 362,000 in the prior week.
- Thursday afternoon, San Francisco Fed President Janet Yellen will speak in Seattle about the economy.
- Friday morning, the BLS will release its measure of wholesale inflation, the producer price index (PPI), for August. Economists, on average, expect the PPI to rise 0.2 percent, compared with 0.1 percent in July, according to Briefing.com. Excluding food and energy costs, core PPI is expected to rise 0.1 percent, matching July's gain.
- Also Friday morning, the Commerce Department will report on the trade balance in July. Economists expect the gap to shrink to $51.6 billion from a record $55.8 billion in June.
- Later Friday morning, Cleveland Fed President Sandra Pianalto will talk in New Mexico about the economy.
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