The first week of the third quarter will probably be a quiet one as many fund managers, having put the final touches on their portfolios last week, leave on their Fourth of July vacations.
But a few key snapshots of the economy — notably the Institute for Supply Management’s manufacturing and service sector indexes, and the Labor Department’s jobs report — could provide Wall Street with some direction.
On Monday, the ISM’s June manufacturing index is expected to come in at 55.5, according to the median estimate of economists surveyed Friday by Thomson Financial, indicating slightly stronger expansion than May’s reading of 55.0. The ISM’s index of the service sector in June will come out Thursday, and is expected to slip to 58.0 from 59.7 in May.
The market hopes the reports show the economy is still rebounding from its first-quarter slowdown; however, any signs that inflation is accelerating — such as high readings on the prices paid indexes — could cause investors to worry about a possible rate hike. Last Thursday, the Federal Reserve said although recent data have shown that inflation is moderating, a trend has not been established, so policy makers want to see further signs that costs are under control.
On Friday, Wall Street expects the Labor Department to report that unemployment held steady at 4.5 percent in June, and that nonfarm payrolls rose by 130,000, a smaller rise than May’s gain of 157,000. The job market has been one of the stronger areas of the economy this year, so if the figures widely miss forecasts, concerns could arise that growth might not pull off the recovery so many economists are predicting.
Last week, the Dow Jones industrials rose 0.36 percent, the Standard & Poor’s 500 index rose 0.05 percent and the Nasdaq composite index rose 0.55 percent.
This week will also feature the Commerce Department’s Monday report on May factory orders — which the market expects to show a 0.3 percent decline, compared to a 0.3 percent rise in April — and automakers’ June sales, which will be released Tuesday.
The markets will be closed Wednesday for the Fourth of July holiday.
There are no major earnings reports this week, but investors will be keeping an eye out for any profit warnings ahead of the second-quarter earnings season, which begins in earnest the third week of July.