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Rocky month, US data in focus

Ahead of Friday's highly anticipated jobs report, investors will watch two key reports out Tuesday for further indications on the domestic economy.

The August ISM manufacturing index comes at 10 a.m. ET. As of the close Monday, analysts polled by Thomson Reuters expected a read of 52.6, a tick lower than July's 52.7 print.

Quincy Krosby, market strategist at Prudential Financial, said her firm is watching for new orders and hiring intentions within the ISM report.

"The market's been watching all the economic data to see if the economy is getting enough momentum for the Fed to pull the trigger," Krosby said. "Over the last number of years, when we have had pullbacks, really what you needed to get the market going was positive comments from the Fed."

U.S. auto sales for August come out throughout the day and are expected to show continued strength in the consumer.

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

For the last four months, data have shown a seasonally adjusted annual rate (SAAR) of more than 17 million vehicles sold, according to Automotive News.

"With the auto sales number tomorrow, which will continue to show that's a real hot number, I think people will have a different view of the economy overall," said JJ Kinahan, chief strategist at TD Ameritrade.

To be sure, analysts noted continued uncertainty hanging over markets.

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"What happened last week's not going to go away for a while. I think we're going to have high intraday volatility," Kinahan said.

The major averages lost more than 6 percent each in August for their worst month in more than three years. The Dow Jones industrial average closed Monday within 0.1 percent of falling into correction territory, off about 115 points, or 0.69 percent, at 16,528. The S&P 500 ended down 0.84 percent at 1,972, a key level some analysts are watching for support.

A rocky August could be an indication of further short-term declines ahead.

Since 1950, September is the worst-performing month of the year for the Dow Jones industrial average, and the S&P 500 according to StockTradersAlmanac. Going back to 1979, September is the worst month for the Nasdaq.

"Right now this is a market that wants to see if it's all clear," Krosby said. "All clear in the sense that we say we finished it. This episode is done. The market right now is rebuilding. Part of that is rebuilding confidence."

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The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held little changed Monday at 28, posting a gain of nearly 135 percent in August for its biggest monthly rise going back to 1990.

"The volatility is really pumped ahead of the jobs number, probably the biggest jobs number because of the rate hike," said Larry McDonald, macro strategist at Societe Generale. "There are risks in the market (because of) China but the volatility is up on the jobs. "

He noted that the curve remains uncharacteristically inverted, with longer-term futures contracts pricing in less volatility than in the short term.

Traders will also keep an eye on oil, which surged Monday on encouraging news out of OPEC to recoup sharp August losses and post monthly gains.

Treasury yields will also be in focus, with the 10-year yield jumping to 2.22 percent and the 2-year at 0.74 percent late Tuesday.

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"I don't think the bond market's pricing in September at all, just taking off some of the rally we've had. I think they're pricing in, September is on the table," said Eric Stein, co-director of global fixed income at Eaton Vance Management.

Boston Fed President Eric Rosengren, a nonvoting Fed member, is scheduled to speak Tuesday on lessons from past tightening cycles at 1:10 p.m., ET.

Earnings out include Dollar Tree, H&R Block and Qihu 360 Tech.