Thursday's economic reports should paint a fairly current picture of the state of manufacturing, housing, and the consumer, all key pillars of the economy.
Friday's September jobs report is still the big number of the week, but after a disappointing Chicago Purchasing Managers Index Wednesday, investors will pay close attention to the national ISM manufacturing data Thursday. September ISM is expected to come in at about 54, and score its second consecutive month above 50. August was at 52.9, and a reading above 50 is seen as a sign of growth.
Stocks slumped on Wednesday's purchasing managers report. The Dow was down more than 100 before finishing the day off just 29 at 9712. The S&P 500 was at 1057, down 3. The S&P and Dow both had gains of nearly 15 percent for the third quarter.
Also on Thursday's list is the closely watched weekly jobless claims report, which has been trending lower. That report, as well as August's personal income, are reported at 8:30 a.m. September ISM is released at 10 a.m., as are construction spending and pending home sales.
Monthly auto sales for September are released throughout the day and could be telling because they lack the boost from the government's "cash for clunkers" program seen in August sales.
Another big event Thursday will be Fed Chairman Ben Bernanke's testimony before the House Financial Services Committee, starting at 9 a.m.
Economic data in the past week has included some disappointing reports, below economists' expectations. "It doesn't mean we're double dipping. We're barely growing. The quarter we're concluding did exceed 3 percent overall growth," said Steven Wieting, an economist with Citigroup.
The final read on second quarter GDP was also reported Wednesday and came in at negative 0.7 percent, revised from minus 1 percent.
- Revised GDP Estimate Gives Market Pleasant Surprise
Wieting said he expects ISM of 54, but he wouldn't be surprised to see it dip in coming months. He said a lot of the manufacturing activity was ramped up by the auto industry's return to production. "When you look at industries away from vehicles, it's been a slower, steadier improvement," he said.
"Folks have focused on a slower rate of decline. Now that we're growing some, they're focusing on rates of growth. Peak acceleration in some of this data has already happened," he said.
"I think we're looking to see lower fourth quarter than third quarter but growth nonetheless,'" he said. Wieting expects third quarter GDP of 3.25 and fourth quarter of 2 percent. First quarter will improve again to 2.7 percent. "It could probably strengthen throughout 2010," he said.
- Employers Cut 254,000 in Sept., Larger Than Expected
Wieting expects weekly jobless claims of 520,000, down from 530,000 the week earlier. He said employment data is all moving in the right direction but the unemployment rate should stay high for a long period of time. He expects non farm payrolls to decline by 175,000 and an unemployment rate of 9.8 percent, when jobs data is reported Friday.
Traders have been debating whether the stock market is getting tired after a 50 percent run since March 9. Cowen's John O'Donoghue said he wouldn't be surprised to see the market pull back, but the decline could be tempered. "If the stock market takes a swoon here, I would think over time there's a cushioning effect from this cash," he said. Traders have been talking about the record levels of cash in money market mutual funds, totaling about $3.5 trillion.
For now, the stock market is focused on the economic data. "That ultimately will drive us directionally until we get the micro effect of all the earnings coming in," he said.
"You've got a ton of cash on the sidelines. You've got valuations that are stretched....You've got earnings coming up which I think will be important," he said. At the same time, "people are confused about how the country gets out of this mess."
Long-term Treasurys came under slight selling pressure Wednesday, after the weak regional manufacturing news. The 10-year fell, as its yield rose to 3.31 percent. The two-year note's yield slid to 0.96 percent from 1 percent.
John Spinello, head of Treasurys strategy at Jefferies, said traders were watching the Fed speakers Wednesday. "It was not really active until a little later in the day. You had all the Fed people talking. We had month end to deal with though it wasn't huge in Treasurys. It was bigger in mortgages," he said.
Spinello said comments form Fed Vice Chairman Donald Kohn were the important ones Wednesday. He said there was weakness in the shorter end of the curve because of all the hawkish talk out of Fed officials lately. Traders have said Fed Governor Kevin Warsh's comments last week that the Fed could act sooner than expected to drive rates higher was still a factor in market psychology.
"Kohn was probably the most important speaker and I think he was pragmatic. He let everybody know they're going to stay on hold...and they're not going to do anything that could slip up economic growth until they're certain the economy has traction," he said.
In addition to Bernanke's testimony, two Fed officials are talking Thursday. Cleveland Fed President Sandra Pianalto speaks in New York on the economy at 5:30 p.m., and Atlanta Fed President Dennis Lockhart speaks on the economy at the same time in Macon, Ga.
What Else to Watch
CNBC's Charlie Gasparino was first to report that Bank of America CEO Ken Lewis is retiring at year end. The company did not name a successor and that should be a topic of market talk Thursday. Lewis has been under fire by regulators for his role in the Merrill Lynch acquisition. A replacement for Lewis was not named.
Constellation Brands and Accenture both report earnings Thursday.
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