Markets face a barrage of potential catalysts as the month of June begins, a traditional period of stock market weakness.
From Greece's debt talks to a European Central Bank meeting and Friday's U.S. jobs report, there are plenty of events in the coming week that could shore up the dollar's gains, change interest rate expectations and rock equities. OPEC also meets at the end of the week, and Greece has a debt payment due to the IMF on Friday.
There is an important series of U.S. May economic data, including ISM manufacturing Monday and auto sales Tuesday, which in addition to Friday's May jobs report, could help clarify the strength of the economy and change market perceptions about when the Fed might start to raise interest rates.
"I think, if anything, the data over the next week or two will bring some of those Fed expectations in a little bit more," said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management. Fed funds futures point to the highest odds of a first rate hike in December, though investors had been previously more convinced of a September hike, before a stream of weak March and April data.
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"People are wavering on September. Those expectations will probably firm a little on September. My guess is it's December, but September expectations will probably pick up," said Burkly, adding he expects to see improvement in May reports.
Stocks in the past week were lower, with Friday a particularly sloppy trading day. The Dow declined 1.21 percent for the week, to 18,010. The was off 0.88 percent, while the Nasdaq outperformed the rest, finishing slightly lower at 5,070, off 0.38 percent.
June Swoon
With shares dropping Friday as the month of May ended, some traders expect the negative mood to spill over to Monday.
For the past six months, the market has closed out the final trading day of the month with a loss, but the S&P 500 on the first day of the following month was higher three out of six times.
The major indexes ended May with gains in defiance of the old stock market adage—to sell in May and go away. The S&P 500 was up slightly more than 1 percent. According to market data and analysis firm Kensho, all three indexes have turned in negative performances on average for the month of June.
The Dow, for instance, has been down eight of the last 10 Junes and it has averaged a 1.6 percent decline. According to Bespoke, the month of June is the second-worst performer for the Dow over the past 20 years.
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"I think we'll continue to tread water in here until we get closer to the next earnings season. I wouldn't be surprised to see a tough first half of the month for the market," said Burkly. "The S&P could dip 3 to 4 percent, and still hold its trend line ... I could see a dip of 3 to 5 percent. The Nasdaq is the only one that's reasserted itself by breaking out to a new high."
Scott Redler, partner at T3Live.com, said the recent back and forth activity shows a lack of conviction. "The market basically has been changing its mind day to day on whether it's going to break out or break down, and it seems both sides of the tape have good reasons for it," he said.
Treasury yields in the past week mostly moved lower, except at the short end, where yields rose. That flattening move was seen as a signal that markets expect a rate hike ahead. The 10-year yield was at a four-week low of 2.09 percent Friday afternoon, well below last Friday's 2.29 percent.
Wild week
"Next week could be wild. The stock market is still near record highs. It's consolidating its gain. It seems to have lost some of its upside momentum. What's interesting is it's really not following bonds which it was for a while," said Marc Chandler, chief currency strategist at Brown Brothers Harriman.
"Bonds and stocks were really moving together. Now they're not. The key is do they come back in line. I think the general sense is that people are feeling more confident that the two-month dollar downside correction is over."
The dollar index gained in the past week, as foreign exchange traders, more than others, focused on the words of Fed Chair Janet Yellen. She spoke before the Memorial Day weekend and said the central bank could raise rates this year if the economic data are strong enough. That helped the dollar break out against the yen, which sank to a 12-year low, on expectations of higher U.S. interest rates.
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As for upcoming Fed speakers, New York Fed President William Dudley speaks on Friday, several hours after the employment report is released. Dudley is viewed as being close to Yellen, and his words will be important.
Chandler said for the Fed to hike, there needs to be improvements in consumption—data that will be reported with personal income Monday. He also said inflation needs to pick up and the Fed's preferred measure, the PCE deflator, is released Monday. There are 227,000 nonfarm payrolls expected when May's employment report is released Friday, and if that number is as expected or better, it could also encourage investors to consider a September rate increase.
"If it's a downside surprise, I think what people will jump to is that the Fed won't raise rates in September," Chandler said. "Given the market's rally, I think the market will have a symmetrical response. It will come off more on a weak number than rally on a strong number."
Traders will also be looking overseas for direction. China PMI data is released Sunday, European inflation data are released Tuesday and the European Central Bank rates meeting will be followed by a presser Wednesday with ECB President Mario Draghi.
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Chandler said the ECB shouldn't take action Wednesday but Draghi could discuss the bank's quantitative easing program and take questions on Greece. Headlines about that nation could ruffle markets but at the end of the week, there still may be no resolution, he said.
"Greece owes about 300 million euros ($329 million) on June 5 but the IMF says if Greece asks permission, it could bundle the whole month of payments together—which means it could miss that payment," Chandler said.
In the oil market, traders will be watching the OPEC meeting Friday. The Organization of the Petroleum Exporting Countries is not expected to take any action to alter output, or change its recent policy of letting the market determine prices.
U.S. oil futures surged 4.5 percent Friday to $60.30 per barrel, as the U.S. rig count fell again. Traders said crude also gained on terrorism concerns after ISIS claimed responsibility for a car bomb in Saudi Arabia. A move by the U.S. Environmental Protection Agency to reduce ethanol requirements in gasoline was also a factor traders said supported both oil and gasoline futures prices.
What to watch
Monday
Earnings: NGL Partners, PVH
8:30 am: Personal income
9:05 am: Boston Fed President Eric Rosengren
9:30 am: Fed Vice Chairman Stanley Fischer on lessons from financial crisis
9:45 am: Manufacturing PMI
10:00 am: ISM manufacturing
10:00 am: Construction spending
Tuesday
Monthly vehicle sales
10:00 am: Factory orders
Earnings: Medtronic, Dollar General, Cracker Barrel
Wednesday
8:15 am: ADP payroll data
8:30 am: International trade
9:45 am: Services PMI
10:00 am: ISM nonmanufacturing
2:00 pm: Beige book
2:15 pm: Chicago Fed President Charles Evan at banking symposium
4:00 pm: St. Louis Fed President James Bullard on the economy, meets press
Earnings: Vera Bradley, Five Below, Brown Forman
Thursday
8:30 am: Initial claims
8:30 am: Productivity
12:00 pm: Fed Gov. Daniel Tarullo on economy
Earnings: JM Smuckers, Lands End, Joy Global, Ciena, Diamond Foods, Cooper Cos, Verifone
Friday
8:30 am: Employment report
12:30 pm: New York Fed President William Dudley on economy, Q&A
3:00 pm: Consumer credit
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