Like a hurricane spinning off shore, many analysts and investors expect headwinds from economic data to rock the stock market in September.
Stocks were in the doldrums Tuesday, finishing the month with a more than 4 percent decline, making it the worst August for the market since 2001. The Dow ended Tuesday up 4 to 100014, putting its total monthly loss at 4.3 percent. The S&P 500, at 1049, is down 4.7 percent for the month, and the Nasdaq is down 6.2 percent at 2114.
Traders have been looking ahead to the big event of the week — Friday's jobs report.
The August employment report and Hurricane Earl should pass by Wall Street at about the same time Friday morning, and both are hard to predict. The likelihood of a good jobs number is low, according to economists, who expect very sluggish private sector job growth.
"September will give us a lot of new information. August was just a dearth of trading. There wasn't much going on," said Harris Bank CIO Jack Ablin.
"Everyone comes back from vacation, and not just U.S. investors. For the Europeans, no news is good news, and there's been no news because they're on vacation...Now they're coming back and we're going to hear more stuff and it probably won't be nice," he said.
Ablin noted that the American Association of Individual Investors data showed bullish sentiment among individuals at just 20.7 percent, the lowest level since stocks began to rally in March, 2009. The historic average is about 39. Many analysts use the indicator as a contrarian signal, but Ablin said he doesn't see it that way. He believes there are just many investors that are not committed, not that they are truly bearish.
Several important data points are released Wednesday, including ISM manufacturing at 10 a.m. ADP, a private sector payroll report, is released at 8:15 a.m. and construction spending is at 10 a.m. Monthly auto sales are also reported by auto makers throughout the day.
Economists say ISM may disappoint, after surprising weakness in recent regional Fed surveys.
"It's going to be softer, reflecting really poor sentiment," said Deutsche Bank chief U.S. economist Joseph LaVorgna. "I think ISM often times can be a measure of sentiment and sentiment in the last few weeks has taken a decided turn for the worse."
The issue is we can talk ourselves into a downturn. It's kind of like the hypochondriac that worries enough that they get something they weren't actually going to get," LaVorgna said.
Pierpont Securities chief economist Stephen Stanley said he expects ISM to weaken from July's 55.5 level. A reading above 50 signals growth. "We were at high levels a couple months ago, above 60. We expect 53, which isn't far from the consensus. We're still positive. We're still seeing growth, but we're growing at a decelerating rate," he said.
Stanley also expects auto sales to reflect a slight slowdown. He expects an annualized selling rate of 11.3 million vehicles in August, down from 11.5 million in July. "Car sales seem like they are steady to down a little bit, but I think the auto companies are playing a modified version of the game we used to play in the good old days. When demand is down you resort to incentives and fleet sales to keep things afloat," he said.
In Tuesday's markets, investors moved toward safety despite the slight move in U.S. equities prices. Gold for December delivery rose $11.10 to $1,250.30. The bond market saw buying along the curve, and the yield on the 10-year note at 2.467 percent late in the day.
Oil broke from its pattern of trading with stocks, and slumped more than 3.7 percent Tuesday to finish at $71.92 per barrel. It was down 8.9 percent for the month of August.
John Kilduff of Again Capital said the Fed minutes, released at 2 p.m., were a factor behind the decline. The Fed discussed a weaker economic outlook.
"The minute from the Fed meeting and the realization that Hurricane Earl may actually be bearish for gasoline demand sent energy prices plunging at day's end," he wrote in an email. "To the extent there remains an economic recovery, it is not enough to rationalize current total petroleum inventory levels that are at their highest since the early 1980s."
"Recent weak gasoline demand will be exacerbated if motorists along the east coast don't hit the road for the Labor Day weekend, due to the storm," he noted.
Kilduff also said the market is getting nervous ahead of the Friday jobs report and the energy market is beginning to signal worries about a double dip recession.
What Else to Watch
Besides the data, traders will be watching Washington Wednesday, where the Financial Crisis Inquiry Commission holds a hearing on Wachovia and Lehman. Former Lehman Chairman Dick Fuld will testify, as will Robert Steel, former Wachovia CEO. Fed Chairman Ben Bernanke testifies before the commission on Thursday, as does FDIC Chair Sheila Bair.
There are some Fed speakers to watch Wednesday. Fed Gov. Elizabeth Duke speaks in Washington at 10:45 a.m. on neighborhood stabilization at a summit on vacant properties. Chicago Fed President Charles Evans speaks there at 5:15 p.m. Dallas Fed President Richard Fisher speaks at 1:40 p.m. on the economic climate.
Apple, the maker of everything I-, holds a product introduction in San Francisco at 1 p.m. Borders, Brown-Forman, Heinz and Joy Global report earnings in the morning. Hovnanian reports after the bell.
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