Stock exchange traded funds rallied Monday and could be volatile this week as markets get several data points on the economy, highlighted by Friday’s nonfarm payrolls report.
SPDR S&P 500 ETF (NYSEArca: SPY) was up nearly 2% to start the week following reports on personal income and spending, and pending home sales. Investors were also relieved Hurricane Irene caused less damage than expected. [ETFs Rally on ‘Attractive’ Valuations, Fed Hopes]
“This week, we will get a much more comprehensive view of the economic damage wrought by the financial storms of August,” said David Kelly, chief market strategist at JP Morgan Funds. “Tuesday’s consumer confidence number for August should be ugly although daily tracking data suggest an improvement in attitudes during the month following a very sharp slide at its start.”
On Tuesday, investors will also digest the minutes from the latest Federal Reserve meeting.
“Wednesday brings the Chicago Purchasing Manager’s Index and both this reading and the national ISM Index, due out on Thursday, should confirm the weakness seen in earlier regional numbers,” Kelly wrote in a weekly outlook Monday. “According to industry analysts last week, vehicle sales appeared to be about flat month-over-month for August. Thursday’s report will tell us whether the hurricane knocked those projections off track.”
Still, this week’s main event is the jobs report expected to cross Friday.
“Throughout the week, though, the specter of the August employment report will hang over the market,” the JP Morgan Funds strategist said. “Analysts are looking for a gain of between 75,000 and 100,000 net new payroll jobs. However, the risks to this forecast should be strongly on the downside. “
He cited the Verizon strike and recent data pointing to weakness in the economy.
“Because of all of this, there is a clear risk of a negative reading on August employment growth. If markets were prepared for this, they might be able to shrug it off allowing stocks to post a second consecutive week of gains,” Kelly wrote. “But if consensus expectations don’t fall rapidly and Friday’s report is classified as a major disappointment, then markets may have some further adjustments before the gravitational pull of extreme valuations finally moves both stock prices and interest rates higher.”
SPDR S&P 500 ETF
Full disclosure: Tom Lydon’s clients own SPY.