updated 9/3/2006 6:10:15 PM ET 2006-09-03T22:10:15

Wall Street gets back to work Tuesday after two weeks of light summer trading, and investors encouraged by recent economic data are expected to shift money into the stock markets.

Major Market Indices

Portfolio managers and traders will end their vacations and actually come back to a pretty decent market. Stocks have inched their way up leading into September, and the major indexes are at three month highs as investors remain confident about the economy.

And, with oil spending most of last week below $70 per barrel, investors are seen using the next few days to take positions ahead of upcoming third-quarter earnings reports.

“With energy on the sidelines, corporate earnings staying strong, and the Federal Reserve on the back burner, you’re going to see a lot of reluctant money chasing returns during the week,” said Peter Dunay, an investment strategist with New York-based Leeb Capital Management.

Last week, Wall Street absorbed a number of new economic readings that provided further evidence the economy has moderated enough to ward off future interest rate hikes. The Federal Reserve’s 17 straight interest rate hikes, before it paused on Aug. 8, were designed to help slow the economy down from its expansion over the past three years.

Consumer confidence, home sales, and other recent reports have indicated the central bank’s campaign appears to be working. As fears about inflation and the strength of the economy subside, and with very little data due this week, oil prices are seen as the market’s main driver.

Crude prices tumbled as Tropical Storm Ernesto missed oil rigs in the Gulf of Mexico. Prices for the most part have stayed at these low levels despite new jitters about Iran’s nuclear program.

One area money managers might siphon cash away from is the Treasury market. Bonds staged a sharp summer rally as investors moved out of stocks in May, then slowly began building back their equities positions in late July. The 10-year Treasury note has seen its yield, which moves in the opposite direction of prices, tumble from a late-June peak of 5.24 percent to a five-month low of 4.73 percent on Friday.

“You’ve got a lot of people who are just waiting to get back from Labor Day to start taking positions,” said David Sowerby, chief market analyst at Loomis, Sayles & Co. “Things will pick up (this week), but don’t look for there to be any major swings.”

September traditionally was considered a barometer of how the stock markets would finish the year, but in the past decade has been a period when portfolio managers begin to shake up their holdings. On the day after Labor Day, the Dow has risen nine out of the last 11 years, according to the Stock Traders Almanac.

But, because the markets have made small, incremental gains ahead of Labor Day, Wall Street might continue that trend until more economic data and corporate profit reports begin coming out in a few weeks. For now, there’s very little on tap this week seen having the power to jolt stocks.

The major indexes ended last week higher despite days of erratic intraday trading. The Dow rose 1.60 percent, while the S&P 500 added 1.23 percent and the Nasdaq gained 2.47 percent.

Economic data
On Wednesday, investors might get a little more of an idea about what the Fed is thinking. The central bank will release its Beige Book, which summarizes regional economic activity.

The day also sees the release of the Labor Department’s preliminary second-quarter productivity numbers, the Institute for Supply Management’s August services figures, and crude inventories for September.

Initial jobless claims through Aug. 26 and the Commerce Department’s July wholesale inventories follow on Thursday, while the Fed releases its July consumer credit report Friday.

Earnings
There’s also little in the way of corporate earnings. Hovnanian Enterprises Inc. might give Wall Street a better idea how home builders have weathered tougher market conditions.

The company, which reports earnings on Wednesday, is expected to post a profit of $1.10 per share. The stock rose 23 cents to $26.72 on Friday, near the bottom of its 52-week range of $24.79 and $61.71.

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