The Coming Week: NAPM, Jobs and a Fresh Dose of the Worries

July is usually a pretty good month for the market. Here are a few things that could muck all that up.
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After the terrors of April and May, June was not bad for stocks. Most of the major indices, except for the

Dow Jones Industrial Average, ended the month higher. And technicians were pleased to see the market doing some work along the way, establishing clear levels of psychological support, which could act as brakes in a downturn.

"That work wasn't for naught," said John Bollinger, president of

EquityTrader.com

. "We're entering what should be a pretty good month for the stock market."

Stocks generally do well in July -- at least until the end of the month -- and Bollinger expects that seasonal pattern to remain in place this year. Investors are "looking across the valley," as he put it. They are reckoning that the

Fed has nearly brought the economy in for a soft landing and are buying stocks in anticipation of a continuation of the expansion, Bollinger said.

But, he admits, his optimism on the market for July is not unwavering. "My month of goodliness might easily be overcome by psychological disadvantage," Bollinger said.

And this is the big worry. Yes, the market's condition is much improved, but there are some big economic reports in the coming week, and if they come in too hot they could easily deal the market aces and eights.

On Monday, the

National Association of Purchasing Management's Purchasing Managers Index

comes out, and Friday will bring the June

Employment Report

. It is the latter release, in particular, that could give investors hives.

"There's no question that the key is the employment report," said Kevin Flanagan, a money-market economist at

Morgan Stanley Dean Witter

. "The Fed has upped the ante by specifically mentioning the pool of available workers" in the statement that came out after this past Fed meeting, he said.

The Fed worries that a continued tight labor market could increase wage inflation. This is particularly worrisome in these days of high energy prices. Workers are seeing more of their wages go into their gas tanks, and they feel comfortable enough in their positions to demand raises.

The consensus among economists polled by

Reuters

is that the unemployment rate probably did contract a tenth of a percentage point, to 4%, in June. And in general the June economic data is expected to show some pickup from those soft May numbers.

"We would expect somewhat firmer data," said

Goldman Sachs'

director of U.S. economic research, Bill Dudley. "We think the sentiment is going to gradually swing back to the Fed tightening again at the August meeting. It might be 50 basis points."

Dudley thinks that the softer recent economic data are less about signs of a real economic slowdown than payback for an extremely hot first quarter. The warm winter, he says, pushed a lot of economic activity forward, creating a false slowing in the second.

"I wouldn't be as enthused as the markets are on the soft landing," he said. "I think the last two months are just one chapter in the story."

Bollinger suspects the market will come around to something like Dudley's view toward the end of July.

"What I think will create the fall trench will be the Fed coming back in and raising rates again." he said. "As we get to the end of the month, we'll move into choppier territory."