Wall Street's bears have a serious grip on the stock market, a hold that can only add to volatility in the week ahead.
The Dow escaped closing in bear market territory Friday by a hair, finishing the week at 11,346, a 4.19 percent decline for the week and a 19.89 percent decline from its October high.
In the coming holiday-shortened week, there is some key data, including the June employment report, monthly auto sales and a European Central Bank rate meeting. The fourth of July three-day weekend starts just four days after the end of the quarter Monday. Traders say the quarter-end has added to the turmoil in financial markets as big investors shut their books on the first half of a very tough year.
The Dow did dip for a short period Friday into the bear zone, defined as a 20 percent decline from its October high. It briefly touched a level of 11,331—20 percent beneath the all-time high of 14,164, reached Oct. 9.
Stocks are on track for the worst first half since 1970, and the Dow is so far turning in its worst monthly performance since Sept. 2002. As of now, it is also finishing its worst month of June since 1930.
Nasdaq ended the week at 2,315, off 3.76 percent, and off 19 percent from its October high. The S&P 500 was off 3 percent at 1278, 18.3 percent from its October high. S&P 500, as traders have told us, on a course to test the January lows and it is nearly there. The intraday low in January was 1270, and on Friday, the S&P dipped to 1272.
The S&P financial sector lost 6.6 percent in the past week, taking it to a 17.25 percent drop for the quarter so far. The best performer for the quarter is the energy sector, up 3.65 percent and currently the only S&P sector in positive territory.
Oil will also be a factor in the coming week, capable of putting a strangle hold on stocks if it continues to move higher. On the other hand, a decline could open the door for buying in stocks. Oil finished the week up $4.85 per barrel, or 3.6 percent, to a record $140.21.
"I personally think one of the most important set of numbers next week are the vehicle sales numbers because they go directly to GDP," said Deutsche Bank chief U.S. economist Joseph LaVorgna. J.D. Powers sees the market for light vehicles contracting 15.4 percent in the month of June, compared to a year ago, with the U.S. auto makers reporting the worst declines when their numbers are released Tuesday. J.D. Powers predicts a 26 percent decline for GM and a 31.4 percent decline for Ford.
"I don't think the market will move on it that much because it's a weakish kind of number is expected. But I think you're really going to get a story of weak consumer spending," he said.
LaVorgna said he 's also watching the ISM data, reported Tuesday and the Thursday morning jobs data. He lowered his forecast for June non farm payrolls to a reduction of 100,000 from a loss of 75,000. He expects the floods in the Midwest to have been a drag on hiring. He said he expects the unemployment rate to be 5.5 percent, higher than expected and the same as last month.
Other data includes Chicago Purchasing managers data, reported at 9:45 a.m. Monday, the last key report before the quarter end.
Other items to watch include Tuesday's construction spending. The ADP employment report is released Wednesday, as are factory orders for May. On Thursday, weekly jobless claims are reported as usual, along with the employment report at 8:30 a.m. At 10 a.m Thursday, ISM non-manufacturing data is released. Thursday is also when the Fed will report on the value of the Bear Stearns portfolio that guarantees the more than $28 billion in loans for Bear Stearns.
Dollar - Winner or Loser?
Another big event traders are watching in the week ahead is the European Central Banks' rate decision Thursday. LaVorgna said the language will be key. The dollar fell 1.03 percent against the euro in the past week, trading Friday at $1.5790 per euro.
I talked to traders in Chicago's pits about the dollar while I was visiting there Thursday and Friday, and they are all watching the ECB decision with an eye toward dollar—and oil—impact.
The ECB is widely expected to hike rates, a move that is seen as dollar negative.
Kevin Ferry of Cronus Futures Management says a case can be made where the ECB does not hike rates because it is worried about the Euro zone's weaker economies. He also said if there is a rate hike, it may not generate the pop in the euro you might expect. "Global speculators might feel you should sell the currency because of the growth prospects," he said.
If it doesn't cut rates, the ECB stands to lose face and could set off a surge in prices. The swirl of speculation about dollar intervention could certainly come back into o the markets.
Ferry says he doubts there would be intervention but interestingly he said it might be more effective now than in the past because of the electronic marketplace. Previously traders could sit out and then rush back in after the intervention. Electronic trading might be able to make a bigger, faster directional impact.
Food vs. Fuel
Monday's USDA crop report is being closely watched by traders and farmers for clues to the impact of the Midwest floods. Matt Scharl is a trader in the S&P futures pit, but he's also a farmer with a small hundred acre tract in Michigan, planted with corn. "I was going to sell some (corn) futures ahead if this report," he said Thursday. While his farm is far away from the flood area, he suspects the report does not show as much damage to the crop as feared.
Carol Hurley, who trades grains at the CME, said she believes the report will probably not show the total picture of the floods' impact. That may not show up until the August crop report, she said.
There are just a few earnings reports this week.H&R Block reports Monday. Constellation Brands and Apollo Group report Tuesday, and Family Dollar releases its numbers Wednesday.
(Correction: I incorrectly reported that Yahoo's shareholders meeting is this week. )
Aug. 1 is the day Yahoo shareholders consider investor Carl Icahn's slate of directors.