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Investors eye positive catalysts in oil, Google

Growth will be the focus Tuesday as investors look for a continued bounce in equities amid minor reports, oil prices, earnings and surprising news out of Google.

The tech giant announced after the close Monday that it will become part of a new publicly traded entity called Alphabet. Shares will still trade under the tickers GOOGL and GOOG. Both classes of the stock jumped more than 6 percent in after-hours trade.

"That's going to be the topic of the day, and it's going to be difficult to see how it's going to work," said Art Hogan, chief market strategist at Wunderlich Securities.

Outside of individual stock moves, he said, "I think we're clearly shifting back to the macro."

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

Oil will likely remain a major factor for markets amid lack of major economic or overseas news. Dollar weakness and a refinery outage helped crude rally nearly 2.5 percent from a near five-month low early Monday to settle up $1.09 at $44.96 a barrel. The gains boosted the energy sector more than 3 percent as the greatest advancer in the S&P 500.

"I wouldn't be surprised to see more follow-through early tomorrow," said John Caruso, senior market strategist at RJO Futures.

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Hogan also noted that any stimulus announcements from the People's Bank of China overnight could add further support to oil.

However, most analysts say further declines in oil are likely in the near future.

"I think overall longer term the energy sector shakeout has not run its course," said Ben Garber, economist at Moody's Analytics Capital Markets. "Oil prices are still down substantially where many producers would be profitable."

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The Dow Jones industrial average broke a seven-day losing streak on Monday, closing up 1.4 percent at 17,615, but remained solidly below its 50-day and 200-day moving averages. The S&P 500 and Nasdaq Composite both jumped more than 1 percent to close above those closely watched technical levels, ending at 2,104 and 5,101, respectively.

The Dow and S&P 500 had their best day since May 8, with the latter recovering all its losses from last week's rout.

Gold also rallied Monday to settle at $1,104.10 an ounce, its highest level since the end of June.

The oversold bounce could continue Tuesday to a lesser extent. Monday's gains were led mostly by surges in beaten-down names such as Caterpillar and Apple, which each had their best day in several months.

"We wouldn't go fully in. I don't think we've fully seen a correction," said Jeff Carbone, senior partner at Cornerstone Financial Partners.

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Disney's disappointing earnings report last week set off a major selloff in media stocks that weighed heavily on the major averages.

"Generally second-quarter earnings left a sour taste in investors' mouths," said Jack Ablin, chief investment officer at BMO Private Bank. That could change "as investors turn their attention to something more uplifting, like the economy."

Economic data out Tuesday morning include the NFIB Small Business Index at 6 a.m. ET, Productivity and Costs at 8:30 a.m. and Wholesale Trade at 10 a.m.

June wholesale inventories are expected to increase 0.4 percent, slightly less than the 0.8 percent gain in May, according to analysts polled by Reuters. Wholesale sales are expected to increase 0.4 percent, up from 0.3 percent in the month prior.

Productivity is expected to show a 1.6 percent increase in the second quarter, versus a 1.9 percent decline previously, according to Reuters. Labor costs, however, are forecast to rise 0.1 percent versus 5 percent in the first quarter.

The small business optimism index was 94.1 in June.

"The Fed cleared a big hurdle last week with the decent payroll number," said Brandon Swensen, co-head of the fixed income desk at RBC Global Asset Management.

While every economic report will be scrutinized for its impact on the timing of a rate hike, Swensen said since the Fed's September meeting is only five weeks away, "the data would have to turn pretty sharply to change the tone we've heard from the Fed recently."

The most important data point for the week is Thursday's retail sales, which will shed light on whether consumer spending is picking up from a so far mostly tepid pace.

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Investors on Tuesday will also digest better-than-expected earnings from Shake Shack. Shares of Kraft Heinz fell in extended-hours trade after the recently merged divisions reported separate results that showed revenues hit negatively by foreign exchange.

Towers Watson, JA Solar and Red Robin Gourmet Burgers report before the open Tuesday, while Computer Sciences, Symantec and Cree post results after the close.