Uneasy Quiet Ahead of Jobs Report

The market seems to lack a positive catalyst prior to Friday. Plus, longer-term concerns emerge.
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No news may be good news, but not so on Monday, as the major indices all lost ground. It's troubling for the bulls that security fears around the Republican National Convention and a dearth of key economic indicators could leave the market listless, or certainly rudderless, until late in the week.

Barring a terrorist incident, which obviously wouldn't be "good" news, the lull should lift on Friday as the GOP leaves town and the Labor Department issues the all-important payrolls report for August.

The payrolls report could go either way, but arguably could have a bullish impact regardless (unless it's truly dismal).

Coming on the heels of weakness in May and June, a third-straight underwhelming reading could put the

Federal Reserve's

interest rate hikes on hold, which could prove bullish -- certainly for interest rate-sensitive stocks. Conversely, if Friday's payroll data proves better-than-expected, a rally could emerge in the wake of President Bush's keynote address Thursday -- presuming the president is able to rally the faithful and restore investor confidence in a second business-friendly term.

Ahead of key events later this week, Monday's market was dominated by minutiae as developments as disparate as a wrong bet on chicken feed prices to a delay in a feature of

Microsoft

(MSFT) - Get Report

Windows contributed to the selling. The

Nasdaq Composite

fell 1.4% to 1836.49 while the

S&P 500

dropped 0.8% to 1099.15 and the

Dow Jones Industrial Average

sunk 0.7% to 10,122.52.

Granted, it was a slow day in August, with volume on the

New York Stock Exchange

its second-lowest for the year at 848.3 million shares, beating Friday's anemic total by about 400,000.

However, some serious long-term issues of concern emerged Monday, including the outlook for housing prices, data on consumer income and spending, and corporate profitability.

Economists from

Fannie Mae

(FNM)

and the National Association of Realtors predicted housing prices may decline in some areas, undercutting a source of consumer strength.

"There is an increasing risk of price declines in some of those areas, especially those in which job growth has been the most anemic," David Berson, Fannie's chief economist said on a conference call with reporters. He was referring to urban areas that have seen prices climb while job losses mounted, including San Francisco.

Meanwhile, consumer incomes gained just 0.1% in July, the lowest monthly gain in almost two years, following an anemic 0.2% rise in June, the Commerce Department said. But consumers kept right on spending, as consumption rose 0.8%. With consumer debt and consumer debt-service ratios at historic highs, it's a pattern that can't continue indefinitely.

Finally, Prudential Securities tabulated the results of second-quarter earnings reporting season, which is just about wrapped up. On average, companies reported 4% better-than-expected results, which was half the first-quarter tally of 8% surprise upside.

Going forward, third-quarter estimates overall didn't move. Analysts are still expecting 15% profit growth. But the overall number obscures falling profit expectations for technology and economically sensitive industries while rising for energy, utilities, telecommunications and industrials firms.

Analyst Edward Keon and others in the firm's quantitative strategy group are "a bit nervous about the outlook" for the upcoming quarter and year, they wrote in a report on Monday. They're recommending that investors stay defensive.

Monday Malaise

Defense was the watchword on Monday. It was

Tyson

(TSN) - Get Report

that bet wrong on feed and warned that falling demand for chicken and beef would hurt results in its fiscal year ending Oct. 2. The shares lost 8% to $16.20 and took down others like

Hormel

(HRL) - Get Report

and

Kraft Foods

(KFT)

.

Microsoft said late Friday it wouldn't be able to add a new file system, dubbed WinFS, to its Longhorn Windows upgrade in 2006. Its shares lost 0.6% to $27.30 while

Hewlett Packard

(HPQ) - Get Report

lost 1.9% to $17.92. Also hurting techs was a report by Smith Barney analyst Glen Yeung predicting that

Intel

(INTC) - Get Report

could lower its revenue guidance during a planned update on Thursday. Intel lost 1.9% to $21.60.

Even news that used to be good news -- falling oil prices -- was bad news. Oil producers like

Exxon Mobil

(XOM) - Get Report

and equipment-servicing companies like

Schlumberger

(SLB) - Get Report

lost ground while broader stocks enjoyed no benefit from the move. At one point, oil fell back to its late-July level, retracing all of its gains for August. Crude futures on the New York Mercantile Exchange hit a low of $41.30, last seen on July 26, before closing down 90 cents at $42.28.

Ultimately, lower oil prices will be good for the broader stock market. But not so on Monday and maybe not until after the passage of some key events later in the week.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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