A report on the health of the service sector, and ADP's private sector jobs report are of big interest to markets that are already counting down to Friday's July employment report.
The ISM non-manufacturing survey, released at 10 a.m. Wednesday, is expected to come in at 53.1, slightly under the 53.8 last month, but still a reflection of growth. The ISM survey also includes a closely watched employment component. ADP is expected to show a gain of 39,000 private sector jobs in July, when it is released at 8:15 a.m. Traders are also watching the Challenger report at 7:30 a.m., which shows job cuts.
"Payrolls will be a nail biter Friday," said Burt White, chief investment officer at LPL Financial. As of Tuesday, economists expected to see a decline of 65,000 non farm payrolls in the July report. That number would include the loss of government census jobs, which economists peg at 100,000 or more.
Stocks Tuesday were weaker after an earnings miss from Procter and Gamble and disappointing data. There was a report showing flat consumer spending and income, a steeper-than-expected drop in pending home sales, and a 1.2 percent decline in factory orders. Car sales were also not as robust as some had expected, with Ford sales growing just 3 percent.
White said the market has changed its focus from being worried about a double dip recession to being now concerned that the recovery is decelerating.
"We think we're poised for a little bit of a pull back here," he said. White said the market could react to disappointing economic data, and he expects it to be volatile and range bound, between about 1050 and 1150 on the S&P 500.
However, White expects the market to head higher after uncertainty around the mid-term election is eliminated, and it could rally into the year end to as high as 1300. He also expects the economic data to start showing improvement.
The Dow Tuesdaywas down 38 to 10,636, and the S&P 500 was off 5 at 1120. Treasury yields continued under pressure, and the 2-year hit yet another all-time low yield of 0.514 percent intraday.The dollar lost a half percent against the euro and 0.75 percent against the yen. The dollar was at $1.3231 per euro.
David Gilmore of Foreign Exchange Analytics expects the dollar to stay under pressure for now. Investors have been reacting to better news from Europe and weaker data from the U.S.
"That's fast moving currency. Let's not downplay the move so far. In June, it (the euro) was at 1.19," he said.
Tuesday's data painted a weak portrait of the consumer, but White said consumers could become a surprise factor for markets. "They certainly got pounded today as retail stocks are down 2 percent," he said.
"If there's any whisper out there, it's the whisper that back-to-school is going to be better than people think," said White. "There's just so much pessimism on the consumer. Today's numbers didn't help anything."
"We think the consumer stocks could outperform here, in the back to school season, given where the expectations are," he said.
Besides the economic reports, there are still plenty of earnings to pick through Wednesday. Earnings are expected from Toyota, Time Warner, International Exchange, Pulte Group, Polo Ralph Laruen, Garmin, Qwest , PG&E, Devon Energy and El Paso. After the bell reports include Allstate, Hartford Financial, News Corp, Prudential Financial, Tesla Motors, Avis, and Murphy Oil.
Treasury Secretary Tim Geithner speaks on the pro-growth strategies on tax and fiscal policy at the Center for American Progress at 4 p.m.
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