Existing home sales data is expected to be dreary but stocks may do little more than drift Tuesday.
"I don't know how meaningful any of this is when you have such low volume," said James Paulsen, chief investment strategist with Wells Capital Management.
"It does bug you that you have this negative sentiment and vulnerability heading into the September and October worst seasonal months of the year. The good news is I'm reading that all over the place, so that's good," he said.
Stocks fell slightly Monday, after an early bounce from merger activity. The Dow lost 39 points to 10,174, while the S&P 500 slipped 4 points to 1067. Defensive sectors, like utilities and health care performed the best, while the biggest losers were economically sensitive industrials and materials, both down a percent.
Deal news, including the prospect of other bidders for Potash, and a bidding war between Hewlett-Packard and Dell over 3Par, helped bring in some early buyers. Hewlett added a $6 per share premium to Dell's $18 per share takeover offer.
Merger activity is typically a good sign for the market, but Paulsen notes that this recent flurry of activity comes at a time when sentiment toward the economy is not especially good. "You usually see it when there's real acceleration in the economic numbers," he said, noting this may be pent up activity from the spring, when the economy was making gains.
"It doesn't seem to fit with the sentiment though there is evidence the corporate mindsets have been and continue to be better than what the investment sentiments are," he said.
Existing home sales are the big data point Tuesday, when they are released at 10 a.m. Economists expect July sales of 4.6 million units, a decline of 14 percent.
"The housing numbers are still soft. You still have the hangover from the buyers tax credit, and I think affordability is extraordinarily high, but the sector just isn't going to turn up until the labor market looks better," said Deutsche Bank chief U.S. economist Joseph LaVorgan. "When the jobs situation turns up, I think you're going to see there's pent up demand for homes and motor vehicles."
Paulsen said he is also watching the Richmond Fed regional survey, released at 10 a.m., since it is fresher, August data. Regional Fed surveys are not usually watched that closely but analysts said they are paying attention this week because of last week's Philadelphia Fed survey, which showed an unexpected sharp drop to a negative reading.
There is also a $37 billion auction of two-year notes Tuesday, at 1 p.m. Treasury prices rose Monday, and a $7 billion sale of 40-year Treasury Inflation Protected Securities was well bid. At the end of the day, the 10-year note was yielding 2.607 percent.
But that 2-year auction might not fare as well.
"I think the 2s are going to meet a very cold reception," said David Ader, chief Treasury strategist at CRT Capital.
"A 2-year note at 48 bps doesn't do anything for anyone, and as a result, I think you could see this backup and it could back up quite handily," he said.
Ader also said foreign buyers were active buyers of long dated maturities in recent auctions, and they may not be interested in the 2-year. He also notes that market participation in general is light this week. Monday's cash market volume was only about 60 percent of normal, he said.
What Else to Watch
There are a few interesting earnings Tuesday. WPP, BMO Financial, Medtronic, Big Lots, Burger King and Barnes and Noble report Tuesday morning.
Chicago Fed President Charles Evans speaks to a local group that encourages home ownership in Indianapolis at 8:30 a.m..
- Follow me on Twitter @pattidomm.
Questions? Comments? Email us at