A big week for stocks
After a choppy start to September, reports on retail sales, inflation and manufacturing will be key.
NEW YORK (CNNMoney.com) -- After a sleepy start to September, Wall Street is set to pick up the pace in the week ahead.
Investors drifting back in to the market last week after the Labor Day holiday were treated to a scant smattering of economic news, highlighted by a second-quarter productivity report that showed a surprise jump in unit labor costs - a key measure of wage inflation.
While the report worried some investors, it ultimately did little to resolve the main issue Wall Street's been mulling over: namely, just how sharply the economy is slowing down and what that will mean for interest rates.
The week ahead won't bring any resolutions, but it will bring more clues.
Reports are due on the trade balance, import and export prices, manufacturing, consumer sentiment, and most notably - retail sales and consumer prices. (For details, see the chart.)
A few quarterly earnings reports even trickle in next week, with Wall Street brokerages including Goldman Sachs (Charts) and Bear Stearns (Charts) due to release results. Analysts surveyed by Thomson Financial expect third-quarter earnings will jump about 14.4 percent from a year ago, but the first big batch of results won't start pouring for a month.
A number of Fed officials speak this week as well, including two voting members of the central bank's policy-making arm: Vice chairman Donald Kohn and San Francisco Fed president Janet Yellen on Tuesday.
Last week, Yellen made comments to the effect that the Fed may need to restart its recently paused interest rate-hiking campaign because of stubbornly high inflationary pressures. That didn't thrill investors and pressured stocks.
Although few economists expect the central bank to lift rates at the Sept. 20 policy meeting, there is the risk of more rate hikes before the end of the year, especially if inflation doesn't cool off.
The news week is also notable since Monday marks the five-year anniversary of the Sept. 11 attacks. (Full story).
Last week's choppiness was partly seasonal, with investors skittish at the start of September, typically the worst month of the year on Wall Street.
The negative seasonal pull is likely to continue, analysts say, unless the economic news should prove particularly supportive.
The fact that the stock market clocked in an unusually strong August means September could be extra tough this year. The Nasdaq composite rose 4.5 percent in the month, the Dow added 1.8 percent and the S&P 500 index added 2.2 percent.
"You have to keep in mind that most of the rally we saw last month was on spotty volume, with most of the big players paying more attention to beach balls than ticker symbols," said Jack Ablin, chief investment officer at Harris Private Bank.
But now, the big guys are back. Typically, September brings house cleaning, with money managers shedding losers before the end of the quarter. The end of September is also the end of the fiscal year for many mutual funds.
"Going forward, I think there is more vulnerability," Ablin added.
But some investors saw it another way.
The seasonality factors are so well known by investors at this point, said Todd Salamone, director of trading at Schaeffer's Investment Research, that weakness in the month can become a self-fulfilling prophecy. But the anticipation of a weak period can also reduce the likelihood or the intensity of any fall selloff, he added.
"We're vulnerable right now with respect to the fact that the market is trading near the top of the recent range, but we're less vulnerable than we were maybe a year ago," Salamone said. "The underlying sentiment seems to be a little better, at least for now."