After soaring on upbeat corporate earnings and forecasts, Wall Street might be able to stay positive even as there are signs that the economy is still struggling.
Investors enter the week after an extraordinary rally that gave the Dow Jones industrials their best month since October 2002 and their best July in 20 years. All the major indexes gained nearly 1 percent last week and touched their highest levels since last fall.
Dozens of major companies issued better-than-expected second-quarter earnings reports or promising outlooks for the rest of the year. But some traders remain cautious, as shown Tuesday when they received a weaker-than-expected consumer confidence reading and Friday, when they reacted coolly to word from the Commerce Department that that the economy shrank at a slower pace than expected in the April-June quarter.
"We are starting to see a bullish sentiment creep into the market, as we have had a strong run recently," said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn. "A majority of positive earnings news is behind us, so it wouldn't be surprising at all, in fact it might be healthy for the market, to see a brief pullback to refresh and bring new investors back into the market."
July's corporate reports, and the market's own moves, may have given stocks a foundation that will help Wall Street weather bad news. This week, amid the continuing stream of earnings, the market will get reports on employment and how the manufacturing and service sectors fared during July.
"It doesn't matter what they announce nor does it matter about the outcome of the announcement, investors should expect the week to be positive," said David Hefty, CEO of Cornerstone Wealth Management in Auburn, Ind. He said the momentum spurred early last month is enough to keep markets moving for the next few weeks.
The Institute for Supply Management will be issuing its assessment of the health of the manufacturing and service sectors. The ISM manufacturing index, due out Monday, is forecast to have improved to 46.2 in July from 44.8 in June, while the service index, to be issued Wednesday, is expected to have risen to 48.2 from 47. In both reports, a reading below 50 indicates the sectors are still shrinking.
As with earnings reports, the market will want to know what the indexes reveal about the future. If companies report an increase in new orders — which would mean business is picking up — stocks could benefit.
On Friday, the Labor Department is expected to report that the unemployment rate rose in July to 9.7 percent, eclipsing June's 26-year high of 9.5 percent. But the market may be able to take an increase in stride because the Federal Reserve has already warned that joblessness is likely to surpass 10 percent this year and stay well above healthy levels for years.
There is keen interest in what the department has to say about the number of jobs lost last month. Economists expect job losses to have slowed, with about 340,000 jobs cut in July. That would be an improvement from June's 467,000 and less than half the 741,000 slashed in January.
Some of the week's earnings reports will give clues about how the housing industry is faring. Homebuilders Centex Corp., Pulte Holmes Inc., D.R. Horton Inc. and Beazer Homes USA are due to report second-quarter results.
The Commerce Department's report on June construction spending and numbers from the National Association of Realtors on pending home sales will provide more insight into housing, which has been showing some signs of recovery recently.
"What we have seen over the last five months has been a steady improvement, stabilization," said Phil Orlando, chief equity market strategist at Federated Investors. "If we can keep that going, we are on our way."
The week's other earnings reports include a key reading on the high-tech industry from Cisco Systems Inc. And companies including Procter & Gamble Co. and Kraft Foods Inc. may provide some insights into how consumers are likely to be spending. The market's concerns about Americans and their willingness to spend grew last week after the Conference Board reported its monthly index of consumer confidence fell in July.