Tuesday Look Ahead: Data Will Determine Whether Rally has Staying Power

Tuesday's retail sales and the NFIB small business survey could decide whether the September rally rolls on for another day.

Sandra Baker | Photographer's Choice | Getty Images

The surprise September run up in stocks continued Monday, with the Dow, S&P 500 and Nasdaq all now in positive territory for the year.

Weekend news on updated international banking rules — the Basel III agreement — kicked off a global buying spree in bank stocks on relief the new rules wouldn't force large or immediate capital raising by banks. The S&P financial sector was 2.3 percent higher, and the KBW banking index was up 3 percent. Better-than-expected Chinese industrial production data also sent stocks higher around the world.

The Dow was up 81, or 0.8 percent at 10,544, and the S&P 500 was up 12, or 1.1 percent at 1121, about 8 points above its 200-day moving average. The Dow is now up 1.1 percent for the year, and the S&P is up 0.6 percent year-to-date. the Nasdaq, up 1.9 percent Monday, is now up 0.7 percent for the year.

The street has widely expected a rough September, and some still say the tide could turn.

Lord Abbett senior economist and market strategist Milton Ezrati though is a believer. "My money is on it's real," he said.

"The absence of bad news gave us this rally," he said. "...we certainly saw upside for the market. We think it's real. We don't think it's going to be gangbusters but it's real."

But it's dependent on continued improvement in data. "I think right now the market is riding on a knife edge on the economy. If we get disappointing news on the retail sales tomorrow, or any other statistic, investors will run back into Treasurys," he said.

He expects the retail sales to show a 0.3 percent gain for August. "We think it will be up enough to convince people that the consumer hasn't died," he said. "...It will be another nail in the double dip's coffin."

Other data Tuesday includes the NFIB small business survey, released at 7:15 a.m., and business inventories, at 10 a.m. "I'm going to be watching NFIB before the open to see if small business is feeling as depressed as they have been. That's what I'm honing in on," said Art Cashin, director of floor operations at UBS.

Even as stocks and other risk assets continued to rise, buyers returned to the bond market after last week's sell off. As a result, the 10-year's yield slipped to 2.742 percent. The dollar dipped, losing 1.3 percent against the euro and 0.6 percent against the yen Monday.

Rick Klingman, managing director of Treasury trading at BNP Paribas, said the bond market reversal Monday was not a surprise, and it may be a one-day event, depending on the economic reports.

He said the heavy calendar of corporate debt issuance was a factor in the buying. Thomson Reuters IFR said $11.35 billion in investment grade debt was issued Monday, and issuers included GE Capital, Amgen, Symantec,Entergy and RBS. This follows on last week's $35.7 billion, the best week of the year so far. This week is expected to see $20 to $25 billion, according to IFR.

"With a lot of this heavy issuance, people were hedged with Treaurys last week and now it's all pricing today," he said. "We've had eight to 10 different deals today. As they price, the Treasurys get bought back." He also said the Fed's purchase of Treasurys Monday was more aggressive than expected and that supported prices.

As the corporate debt flurry impacted the Treasury market, it also gave an afternoon pop to the stock market. A news wire reported that Microsoft was expected to issue debt to cover dividend payments and stock buybacks. Microsoft would not comment on he report. Its stock closed more than 5 percent higher.

Joel Levington, managing director of corporate credit at Brookfield Investment Management, said he expects the corporate debt wave to continue for the next couple of weeks. "I think you've got a short window ahead of the third quarter earnings kick off," said Levington. "From a company's side, you probably have a couple weeks wind down before you get into the silent period and you have a combination of low rates and great demand."

"The market's been holding up well...I think you're seeing money moving into riskier asset classes so corporates benefit. High yield had a very good week last week. The high-yield index tightened by 81 basis points last week," he said.

What Else to Watch

Cisco meets with analysts in San Jose at 1130 ET.

Microsoft Game Studios releases "Halo:Reach," expected to be one of the year's top selling video games.

The World Energy Council gathering of corporate and government leaders continues to meet in Montreal.

- Follow me on Twitter @pattidomm.

Questions? Comments? Email us at marketinsider@cnbc.com