updated 8/23/2009 2:15:30 PM ET 2009-08-23T18:15:30

Investors need to make a decision in the coming days: Should they trust Ben Bernanke's encouraging words about the future, or give in to worries about weak consumer spending?

Major Market Indices

The Federal Reserve chairman's declaration Friday that the economy is on the verge of recovery sent Wall Street surging and Treasury prices falling as investors poured money into stocks. The major indexes set new highs for 2009.

But investors have extremely short attention spans. When a new economic report is released or a company or government official comments on the economy, that drives trading, and data from just a day or two earlier seems to be forgotten.

That's what happened two weeks ago, when reassuring words from the Fed were quickly canceled out by downbeat reports about consumers. Stocks fell sharply and Treasurys rose as investors sought a safe haven. There could be a repeat this week, as markets worried about whether consumers are going to spend enough to power a recovery will get a pair of readings on consumer sentiment.

"Any consumer data in the short run, whether up or down, will affect the market," said Frank Ingarra Jr., co-portfolio manager at Hennessy Funds in Stamford, Conn.

On Tuesday, the Conference Board releases its monthly consumer confidence index. Economists polled by Thomson Reuters, on average, forecast a modest gain, expecting the index to rise to 48 for August from July's 46.6. The reading has fallen for two consecutive months, which is a concern for investors because consumer spending accounts for more than two-thirds of economic activity. And the July index was an unpleasant surprise, coming in weaker than analysts expected.

While the index is expected to rebound somewhat in August, it would take a reading above 90 to signal that the economy is on solid footing. And that's not likely to happen for some time, because consumers are still worried about losing their jobs as layoffs continue.

On Friday, Reuters and the University of Michigan release their final report of consumer sentiment during August. The preliminary data released Aug. 14, which was significantly worse than expected, sparked a big stock sell-off.

If investors are able to hold on to their optimism following Bernanke's remarks, they might be able to withstand still-shaky readings on consumers. But the market's recent pattern also begs the question: for how long? It's very likely that some economic or earnings report will unnerve the markets again.

Traders sent stocks sharply lower last Monday as they worried about consumer spending, and the major market indexes fell about 2 percent. By the end of the week, Bernanke's assessment of the economy and some better-than-expected existing home sales had the major indexes surging more than 1.5 percent.

"The market says, 'what do you have for me today' and reacts," said Jordan Smyth, a managing director at Edgemoor Investment Advisors in Bethesda, Md.

For the week, the Dow Jones industrial average jumped 2 percent, while the Standard & Poor's 500 index gained 2.2 percent and the Nasdaq composite index rose 1.8 percent.

Investors' intense scrutiny of individual economic reports of course is nothing new; that is how the market has found its direction over the years. Now, though, they are still trying to determine when a recovery will begin and how strong it will be.

"We aren't far enough along to determine whether businesses have reached equilibrium and will move forward or fall further," said Doug Lockwood, chief investment officer at Cornerstone Wealth Management.

In between the consumer confidence reports, investors will get the Commerce Department's data on July durable goods orders, which measures orders to U.S. factories for big-ticket manufactured goods.

Economists expect that orders rose 1.7 percent last month from June, when orders plunged 2.5 percent, their worst showing in five months. A rebound could again propel the market higher and be seen as a sign the economy is healing.

Smyth said that report provides an accurate outlook for potential future growth of businesses, making it a critical piece of data.

Despite the choppy trading lately, investors have been pleased by the economic data — after all, it has fed Wall Street's five-month rally. At first, they were buying on news that the economy's decline was slowing. Now, Smyth said, the market is rising as "we're starting to move toward actual good news."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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