Coming Week: In the Zone

The fourth quarter kicks off amid stock strength as a potential new Dow high looms.
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After a terrific third quarter capped off by a surprisingly sublime September, the fourth quarter kicks off in the coming week with traders looking to keep the good times rolling.

Over the past three months, the market had its best quarterly performance since the last quarter of 2004. The

Dow

climbed 4.7% and spent last week edging near its highest-ever closing price. The

S&P 500

rose 5.2%, and the

Nasdaq

was higher by 4%.

In September, the Dow rose 2.6%, the S&P 500 gained 2.5%, and the Nasdaq tacked on 3.4%.

"The fundamentals and valuations look pretty good right now," says Larry Perruzi, equity trader at Boston Company Asset Management. "There were a lot of things recently, like oil's move up, that could have knocked the market down, but it did not, so the market is proving resilient."

Perruzi adds that investors have come to the conclusion that the "inflation story," which was weighing on the markets, is under control and that the next big issue is growth.

Some answers to the growth question will be forthcoming in next week's economic data, most notably Friday's employment report for September.

"This report is always a nail-biter," says Robert Pavlik, chief investment officer at Oaktree Asset Management. "Too strong of a non-farm payroll report may lead the Street to believe the economy is growing too fast, leading to the belief that the

Fed

may have to cool the economy down with another rate hike. Meanwhile, too weak of a number will have the bears claiming the economy is slowing too quickly."

Payrolls on Parade

Friday's monthly jobs report will headline the week's data releases, but a string of high-profile economic indicators will capture traders' attention, especially considering the light earnings schedule.

First off is the September ISM Index, which will be announced Monday. According to Thomson First Call, economists are expecting a reading of 53.5, down from 54.5 in August.

"The New York, Richmond and Chicago manufacturing surveys were strong while the Philly and K.C. reported weak," says Randy Diamond, sales trader at Miller Tabak. "The data did not resolve the battle between those that believe the Fed needs to cut rates or those that still believe the Fed needs to remain vigilant in terms of rate hikes. Monday's ISM should help make the picture clearer, which makes it a key number to start the week."

Also on tap for Monday will be August construction spending figures, which are expected to show a drop of 0.1%, compared with a 1.2% decline the prior month.

Auto and truck sales for September will be Tuesday's featured releases. Auto sales are expected to rise to 5.4 million vehicles for the month, up from 5.3 million in August. Truck sales are expected to increase to 7.2 million vehicles from 7.1 the month prior.

The manufacturing sector will once again be in the crosshairs on Wednesday, when August factory orders are announced. Factory orders for the month are expected to rise 0.5%, a major reversal from the drop of 0.6% in July.

The ISM Services index for September will be announced Wednesday as well. Economists expect the index to drop to 56 from 57 the month before.

The report with the biggest market-moving potential arrives on Friday with the release of September's payroll figures. Economists forecast an increase of 125,000 jobs for the month, roughly on par with August's 128,000. According to Thomson First Call, economists expect the unemployment rate to remain at 4.7% and the average workweek holding steady at 33.8 hours. Hourly earnings are expected to rise 0.3% after 0.1% growth in August.

Rounding out Friday's data releases will be August consumer credit, which is expected to drop to $4.5 billion from $5.5 in July.

Auto, Retail Roundup

On the corporate news front, the auto and retail sectors will be in the spotlight with their September sales reports. Meanwhile, the number of earnings releases will be light before reporting season heats up in a few weeks.

Big automakers

GM

(GM) - Get Report

,

Ford

(F) - Get Report

and

DaimlerChrysler

(DCX)

report their sales numbers Tuesday, and the market will see if the beleaguered companies can eke out sales growth now that gas prices have moderately dropped.

Most major retail chains, meanwhile, will report September sales Thursday, and the results are expected to show strength.

Target

(TGT) - Get Report

, for one, has already said sales will top its initial expectations.

Those companies reporting earnings this week include

Innovo Group

(INNO)

on Monday, and

Lawson Software

(LWSN)

and

Pepsi Bottling Group

(PBG)

on Tuesday.

On Wednesday,

Arrow International

(ARRO)

and

Wolverine World Wide

(WWW) - Get Report

are slated to report earnings.

Thursday will be the biggest day of the week for earnings, with reports from

Constellation Brands

(STZ) - Get Report

,

Helen of Troy

(HELE) - Get Report

,

Solectron

(SLR)

and

Vail Resorts

(MTN) - Get Report

.

Marriott International

(MAR) - Get Report

also will be reporting results Thursday. The hotel giant is expected to post earnings 30 cents a share, down from 35 cents a year ago, on revenue of $2.8 billion, according to First Call.