With the end of the Labor Day weekend also comes the end of summer. We are headed into, what could be, a tumultuous fourth quarter for stocks. Will fears of a double-dip recession fade? Will consumer confidence rise? Will there be a power shift in Washington? What happens in the final quarter of the year could lay the groundwork for how the market will perform in 2011.
The White House takes center stage
President Obama will spend next week, with a formal speech on Wednesday, talking up the economy and laying out a new round of economic proposals. The stock market will not only take notice of what the President says, but to what extent he is serious about implementing his proposals. Will he be proposing a wish list of things, or things he will actually pass and implement? Wednesday will be a day that politics takes center stage for the markets, so expect the markets to be volatile while it digests and interprets what the President says and how it will impact the economy. Most expect the announcement of measures to stimulate jobs, but what remains to be seen, and what is most crucial, is will the President announce an investor friendly tax policy? Will he extend the tax cuts that are due to expire? Will this include maintaining the current capital gains and dividends tax rates?
The consumer weighs in
Consumer credit numbers for July will also be released on Wednesday. The prior three months showed the consumer continued tighten their belts. April through June should consumer credit declined $14.9 billion, $5.3 billion and $1.3 billion. The consensus is that July will come in at a negative $3.5 billion. If the number comes in below that number, expect the market to interpret it as the consumer is still holding back and upcoming consumer confidence numbers will stay anemic. If consumer credit numbers come in higher than expected and even better than June’s numbers, the consensus will start to shift towards the recovery is taking hold and consumer confidence numbers will start to rise.
Jobs, jobs, jobs
After what could be a turbulent Wednesday, the weekly jobless claims data will be released the following morning. Once again it’s the interpretation of the numbers that will drive the market. Will the numbers show a slowdown in new claims? Will that be because of less unemployment or workers benefits expiring?
Expect Tuesday as the day traders “place their bets” on what Wednesday and Thursday will bring. Friday will be a day that investors, after digesting the data, start to invest, or disinvest. Either way, expect the Dow Jones Industrial Average to trade in a range up or down 300 points next week.
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