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Stocks could continue to shake off the recent round of weak data Wednesday, as Apple unveils its new iPhone 7 and two Fed officials are on the hot seat before Congress.
There are two economic reports the market is watching Wednesday. One is the 10 a.m. release of JOLTS, job opening and turnover data, and the other is the release of the Fed Beige Book on the economy at 2 p.m. EDT.
Markets are hungry for clues about the economy after surprising declines in both ISM manufacturing and nonmanufacturing surveys. The two reports fell on each side of Friday's disappointing August payrolls, which at 150,000 were about 30,000 less than expected. ISM manufacturing showed contraction in that sector, and the services sector was at its lowest level since early 2010.
"What ISM manufacturing and nonmanufacturing tells you is you had a slowdown in the month, which confirms the jobs report to some degree. I think you're going to see data in line with that. Personal income is going to be on the weak side; industrial production is going to be weak. It certainly condones a slowdown in the month, but that's all you're going to see," said James Paulsen, chief investment strategist at Wells Capital. Paulsen expects the weakness to be temporary.
The stock market initially reacted negatively to the weakest ISM services number since 2010 on Tuesday morning, but recovered to end the day higher, and the Nasdaq closed at an all-time high. The S&P 500closed at 2,186, up 6, and the Nasdaq was up 26 at 5,275 amid gains in biotech.
Bond yields, however, declined on the weak data, with the Fed-sensitive two-year yield falling to 0.72 percent.
"You've got weak data for the month, but you've got financial markets that are telling a pretty OK story. Nasdaq hit a new high today, and the stock market has just not pulled back on the face of Fed tightening fears or on the face of slowdown fears," said Pauslen.
Paulsen said there's not much in the way of data before the retail sales report Sept. 15, so the focus might be on how the markets themselves are trading in a month that is expected to see more volatility around central bank meetings. The European Central Bank meets Thursday and could discuss its asset purchase program.
The Fed meets on Sept. 20 and 21, and the weak ISM data helped shoot down already low expectations for a rate hike Tuesday. The testimony of two Fed officials Wednesday morning will be important in the event they shed light on the Fed's thinking around policy and the economy.
Kansas City Fed President Esther George and Richmond Fed President Jeffrey Lacker are part of a panel appearing at a hearing before the House Subcommittee on Monetary Policy and Trade. The officials are expected to discuss governance, monetary policy and economic performance.
"The reason that could be significant … we really haven't had them speak since the jobs number and the back-to-back ISMs. It may uncover that someone feels a little different about those numbers," said Paulsen. "I think it's more likely there could be questions coming out on why should the Fed have so much power."
Paulsen said he sees a trajectory higher for stocks now. "The thing that's different at the moment is the rest of the world is better as well," he said.
But Peter Boockvar, chief market analyst at the Lindsey Group, said the market shouldn't really be going higher. "The stock market is celebrating this mediocrity. Every time it rallies on news like this it gets more and more expensive," he said.
"I continue to think stocks are in fantasy land, and I'm just waiting for the switch to get flicked. This week is kind of quiet data wise. After this week's ISM was the bulk of the week's important data. Granted we do have ECB on Thursday, but we don't expect any changes, even though they'll be asked about their quantitative easing expiring in March," said Boockvar. Boockvar said he's also been watching Japan where the 10-year yield is edging back toward zero and away from negative levels, despite the heavy easing policies by BOJ.
"It's not fundamentals that are going to drive stocks here. It's not direction of earnings that are going to drive stocks. It's all about central banks. To me sign after sign is pointing to limits to this whole game," he said.
Other central bankers appearing Wednesday include Bank of England Gov. Mark Carney, who appears before the U.K. Parliament's Treasury Committee.
Traders, meanwhile are awaiting product announcements from Apple on Wednesday afternoon, after lots of speculation about what might be in the iPhone 7. Expectations are low that the products will dazzle consumers.
"I'm very interested to see if they go wireless on their ear phones," said Paulsen.
Earnings are expected Wednesday from HP Enterprise, Guidewire Software, Valspar, HD Supply Holdings and ABM.