- Stocks are likely to look beyond Friday's surprisingly soft August jobs report and latch onto the latest data on labor and inflation in the coming week's jobless claims and producer price index.
- The post-Labor Day market week could be sluggish, as activity comes back slowly after the late August period.
- Profit growth has been a powerful engine for stock market gains, and strategists expect earnings to continue to be a positive in the face of other potential negatives.
After a weak jobs report, strategists say investor focus may stay on strong profit growth rather than other potential negatives.
Stocks were mixed in the past week ahead of the long Labor Day weekend, with the Nasdaq outperforming, the S&P 500 rising slightly and the Dow flat. The best-performing sectors were on the defensive side, led by real estate investment trusts, utilities, consumer staples and health care.
"You've got this Labor Day effect. People are back from vacation" in the coming week, National Securities chief market strategist Art Hogan said.
Hogan said investors expect the trading activity to pick up as a result, but it typically remains slow in the holiday shortened-week. Investors may assess their summer performance and move to lock in gains or add hedges.
"If you look back at the last five post-Labor Day weeks that have happened with the market near all-time highs, the post Labor Day week is the worst for September," Hogan said.
Friday's disappointing August jobs report — with just 235,000 jobs added — was a dampener for sentiment, but stocks were mixed.
"My outlook for the last several weeks is sideways to moderately higher, and that seems where they're headed. There isn't a lot of bearish data accumulating. At worst we go sideways," said Randy Frederick, Charles Schwab managing director of trading and derivatives.
Frederick said even with worries about the weaker jobs and Covid,-19 investors may continue to focus on profits. Economists blamed the spread of the Covid delta variant for the weaker than expected jobs report.
Strategists say other issues for stocks in September could include the efforts in Congress to pass infrastructure legislation and possible new taxes.
Frederick said he expects the market to look beyond the August employment report, which was about 500,000 lower than expected.
"I don't think there's spillover much into next week for the most part," he added. "The markets are down a little bit, but I think they've taken it in stride better than might be expected."
Weekly jobless claims data Thursday could be even more important than usual because of the big miss in August's employment report. Jobs data is important because that is one area where Federal Reserve Chairman Jerome Powell said he would like to see more improvement before the central bank can decide to slow its bond purchases.
The market has been fixated on the Fed's move to end its $120 billion a month bond-buying program because it is viewed as a precursor to interest rate hikes. However, Powell has stressed the two are not linked.
"If feels like [the jobs report] pushes the announcement of a taper to the November meeting, rather than the September meeting, and for the most part that was consensus," Hogan said.
Hogan said the market will also be watching any inflation-related data, so that makes Fridays' producer price index important after it surged last month. The consumer price index, released the following week, will be even more important for the market.
NatWest Markets head of macro strategy John Briggs said the markets will be watching for any Fed-related headlines after the disappointing employment report.
"Next week, you have [New York Fed President John] Williams speaking. His take will be important. He's viewed as being close to Powell," Briggs said. Williams is set to speak Wednesday at a briefing on the economy.
Besides the Fed, the next big event for stocks will be the third-quarter earnings season, which gets underway in early October. Before that, investors will be watching for any company comments on results.
Frederick said the strength of earnings has been propelling stocks and could keep doing so. "The market was so overvalued for awhile until earnings caught up, but earnings were spectacular and now the valuations aren't as high as they were a few months ago, so we can do this," he said.
Earnings are expected to increase by 29.8% for the third quarter after the second quarter's stunning 95.6% increase, according to Refinitiv.
"There's a vacuum of earnings related news," Frederick said, noting the market could be influenced by geopolitical events in the meantime.
But even if the market loses steam, he doesn't expect a major sell-off because for now, dip buyers continue to come in whenever the market has a setback.
The S&P 500 ended the week up 0.6% at 4,535, versus a 1.5% move higher by the Nasdaq to 15,363, a new high. The Dow was flattish, off 0.2%, at 35,369.
The closely watched 10-year Treasury yield was at 1.32% late Friday, just above where it was a week ago.
Week ahead calendar
Labor Day holiday
Earnings: Coupa Software, Casey's General Store
10:00 a.m. Quarterly Financial Report
Earnings: Korn Ferry, Lululemon Athletica, GameStop, AeroVironment
7:00 a.m. Weekly mortgage applications
10:00 a.m. JOLTS
1:10 p.m. New York Fed President John Williams
2:00 p.m. Fed's Beige book
6:00 p.m. Dallas Fed President Robert Kaplan town hall
8:30 a.m. Jobless claims
10:00 a.m. Q2 Quarterly services
11:05 a.m. Chicago Fed President Charles Evans
2:00 p.m. Dallas Fed's Kaplan, Boston Fed President Eric Rosengren and Minneapolis Fed President Neel Kashkari
8:30 a.m. PPI
10:00 a.m. Wholesale trade