Final dog days of summer could be a good time for stocks

  • Stocks start the week at record levels and could have a last summer time hoorah as the dog days linger for one more week.
  • Traders await major trade developments with Mexico and Canada ahead of an Aug. 30 deadline, which could be a positive for stocks.
  • The final days of the month should have light trading volume but there could be some impact from positioning ahead of September, the worst month of the year for stocks.

Stocks could close out the dog days of summer on a positive note, especially if NAFTA trade talks go well.

The upcoming week could be a very slow one for stocks, but there is still some important data for markets to consider, particularly on the consumer. Consumer confidence is Tuesday; personal income and spending Thursday, along with PCE inflation, and on Friday, there's consumer sentiment. Advanced economic indicators are also on Tuesday.

A number of earnings reports are expected as the quarterly reporting season winds down, with a number of retailers like Tiffany, Dick's Sporting Goods, Dollar General, Best Buy and Ulta Beauty releasing results.

Stocks closed out the past week with S&P 500 at a record high, its first since January and its 15th closing high of the year. The S&P 500 ended Friday at 2,874, up 0.9 percent for the week. The Nasdaq was also at a high of 7,945, for a gain of 1.7 percent for the week. The Dow was at 25,790, up 0.5 percent and still 3.1 percent away for its all-time high.

Whether there are more new highs before the end of August and the Labor Day weekend could depend on the economic data and the trade talks, strategists say.

"Certainly, if there is a deal on NAFTA, that is market positive and then there's a complete focus on China. I think the market understands that the longer, deeper negotiations are going to take more time. The issues are far more complex. I think if they could come up and deliver a NAFTA deal that would be a market positive," said Quincy Krosby, chief market strategist at Prudential Financial.

U.S. and Mexican trade officials are believed to be close to an agreement and were planning to work over the weekend to find an agreement on bilateral issues, which would pave the way to bring Canada back into negotiations on a revised North American Free Trade Agreement.

All three governments are hoping for a Aug. 30 deadline.

Strategists say they are watching for signs that China and the U.S. would be willing to restart negotiations after uneventful talks in the past week between mid-level officials in Washington.

The important U.S. data in the week ahead could be the PCE inflation data, closely watched by the Fed. On Friday, Fed Chair Jerome Powell said the Fed does not expect inflation to get much higher than its target of 2 percent. That and Powell's other dovish comments helped the stock market rally and pushed bond yields lower.

"The chairman assuaged fears that the Fed is going to be more aggressive in the rate hiking cycle," said Krosby.

Art Hogan, chief market strategist at B. Riley FBR, said the week could be the slowest of the year in terms of trading volumes. "I would be willing to bet it's the slowest week we have in terms of average daily volumes. History is your guide," he said.

The coming week also includes month end trading ahead of September. Statistically, September is the worst month of the year for stocks. "This year we didn't have 'go away in May' and therefore it could surprise but most likely it could be choppy because you have the mid-term elections," said Krosby.

What to watch

Monday

Earnings: Heico

Tuesday

Earnings: Tiffany, H&R Block, Best Buy, Hewlett Packard Enterprises, BJ's Wholesale, Box, Tilray, Hain's Celestial, Bank of Montreal, Shoe Carnival

8:30 a.m. Advanced economic indicators

9:00 a.m. S&P/Case-Shiller home prices

10:00 a.m. Consumer confidence

Wednesday

Earnings: Brown Forman, Salesforce.com, Guess, American Eagle Outfitters, Chico's FAS, Movado, PVH, Dick's Sporting Goods

8:30 a.m. Q2 GDP (second reading)

10:00 a.m. Pending home sales

Thursday

Earnings: Campbell Soup, Abercrobmie and Fitch, Dollar General, Dollar Tree, Toronto-Dominion, Signet Jewelers, Burlington Stores, Lululemon Athletica, Smith and Wesson, Ambarella, American Outdoor Brands, Utla Beauty, Cooper Cos, Michaels Cos

8:30 a.m. Jobless claims

8:30 a.m. Personal income/spending

8:30 a.m. PCE inflation data

Friday

9:45 am. Chicago PMI

10:00 a.m. Consumer sentiment