The coming week brings more difficult economic reports and the beginning of September, traditionally a challenging month for the stock.
“Everyone is willing to twiddle their thumbs until September, a difficult time because of how far we are from third-quarter and the election,” said Marc Pado, U.S. market strategist at Canter Fitzgerald.
“The extent of the market oversold levels will be tested (in the next week) by what a cool stream of economic news,” said Nick Kalivas, an analyst at MF Global.
Bullish investors will begin the week with some wind in its sails. On Friday, stocks bounced back from seven weeks lows helped by a report showing economic growth slowed less than feared in the second quarter, and by the promise of Federal Reserve Chairman Ben Bernanke to restore protection.
The Dow Jones Industrial Average / quotes/comstock/10w! I: DJI / delayed (DJIA 10.151, +164.84, +1.65%) gained 164.84 points, or 1.7%, to end on Friday at 10150.65 for the week of the blue-chip index was off 0.6% .
All but one of the 30 Dow components finished with gains on Friday, including Intel Corp. / quotes/comstock/15 *! INTC / quotes / nls / INTC (INTC 18.37, +0.19, +1.05%), an increase of 1.1% after the computer-chip maker lowered its forecast for sales volume. View details of weaker than expected PC market.
“Friday the rally in the face of bearish news from Intel stresses the oversold nature of the trade,” said Kalivas.
The only decliner among the blue chips turned out to be Hewlett-Packard Co. / quotes/comstock/13 *! HPQ / quotes / nls / HPQ (HPQ 38.00, -0.22, -0.58%), with declining shares of the tech giant after it raised its offer for 3Par Inc. / quotes/comstock/13 *! par / quotes / nls / par (PAR 32.46, +6.43, +24.70%) to $ 2 billion, once again won Dell Inc. ‘s / quotes / Comstock / 15 *! Dell / quotes / nls / Dell (Dell 11.89, +0.14, +1.17%) offer for the data storage company. Read story on the ongoing bidding war.
The S & P 500 Index / quotes/comstock/21z! I1: in \ x (SPX 1065, +17.37, +1.66%) rose 17.37 points, or 1.7%, to finish at 1064.59, trimming its third consecutive weekly decline to 0.7%.
The Nasdaq Composite Index / quotes/comstock/10y! I: comp (COMP 2154, +34.94, +1.65%) 34.94 points, or 1.7%, to 2153.63 added, making it a weekly loss of 1.6%.
Friday gains came after the government an estimated U.S. economy grew 1.6% in the second quarter, with higher-than-expected GDP number is on a rise in personal consumption. Read more about less acute than expected data.
“That’s a real relief because the consumer is what everyone is worried about. It builds a case for maybe things are not as bad as you think,” said Pado.
And, speaking to the annual summer policy of the Federal Reserve retreat in Jackson Hole, Bernanke refuted the idea that the central bank had the ball and declared he would not allow the economy to fall into deflation. Read the details of his speech at the Fed.
Deflating fears
“The fear of deflation is the cause of market failures in the last three weeks, because you do not want to eigen deflation is any good, because it will be cheaper next week,” said Pado.
The coming days bring many important economic releases, in July personal consumption and income figures start the week ended with a report on employment in August.
A mid-week to read on industrial activity in August may be crucial, since “industry was what carried us through the first part of the summer”, will decline in July, said Pado.
While the reports are likely to further economic decline, both Pado and MF Global said Kalivas show that the impact on Wall Street is controversial, given the negativity already priced into the market.
“September is historically the worst month of the year for equity returns and investors will remain cautious,” Kalivas said.
Wall Street problems are particularly acute forward-elections. “There is much uncertainty, many extramarital affairs to pop out of nowhere,” Pado said, only partly tongue-in-check.
The month is also difficult to follow given the seasonally slow summer selling season, consumers and corporate honchos take vacations and businesses less inclined to participate in large enterprises, Pado reasons.
That said, while Pado not expect September a good month for Wall Street, he does believe that the stock is to build a base at the bottom of the current range, with the market generally gears in the last quarter, which brings the holiday shopping year and fourth quarter, corporate investment in technology.
Revenue fell to a near trickle, but a few companies are expected to report in the coming days, including SAIC Inc. / quotes/comstock/13 *! Sai / quotes / nls / sai (SAI 15.31, +0.15, +0.99%), HJ Heinz Co. / quotes/comstock/13 *! hnz / quotes / nls / hnz (HNZ 46.85, +0.65, +1.41%), Brown-Forman Corporation / quotes/comstock/13 *! bf. b / price / nls / bf.b (BF.B 62.10, +0.89, +1.45%), H & R Block Inc. / quotes/comstock/13 *! HRB / quotes / nls / HRB (HRB 13.59, +0.12, + 0.89%) and Campbell Soup Co. / quotes/comstock/13 *! CPB / quotes / nls / CPB (CPB 37.47, +0.52, +1.41%).
On Friday, mixed-weighted share earnings for the S & P 500 for the second quarter of 2010 totaled 199.8 billion U.S. dollars for a second consecutive week, according to research compiled by John Butters, analyst at Thomson Reuters.
Of the 490 companies in the S & P 500 over the second quarter, 75% posted profits that analysts’ forecasts, Butters said just
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