Wall Street will watch next week for more ripples from the Federal Reserve's half-point cut in interest rates, including any deeper drop in the dollar, and any more spikes in the price of gold and oil.
Potential corporate profit warnings also have potential to make waves in the stock market, especially in the final week of the month and the third quarter.
Stocks rallied this week following Tuesday's rate cut by the Fed, with both the Dow and the S&P 500 recording their best week since late March. The Dow Jones industrial average gained 2.8 percent, while the S&P 500 also advanced 2.8 percent and the Nasdaq rose 2.7 percent.
With uncertainty about Fed policy resolved, market players can turn their attention toward the third-quarter earnings season, set to begin in early October. Companies that are likely to report results significantly higher or lower than their own forecast tend to pre-announce a week or two in advance of their scheduled reporting date.
There hasn't been a dramatic outpouring of worry, said Joseph Battipaglia, Philadelphia-based market strategist at Stifel Nicolaus. There certainly hasn't been a big flood of financial institutions coming fully clean on what skeletons they have in their closet. So the market may take comfort in that.
Earlier this week, specialty glass maker Corning Inc (GLW.N: Quote, Profile, Research) said third-quarter profit will be in the high end of its forecast range, while online brokerage E*Trade Financial Corp warned it expects to report full-year earnings per share sharply below its previous forecast.
Next week's economic indicators include home sales, consumer confidence, durable goods orders, a final reading on second-quarter GDP and the latest monthly report on personal income.
TOUGH TIMES FOR CONSUMERS
Tuesday's September consumer confidence reading from the Conference Board will get special attention after payrolls data for last month showed the first negative reading in more than four years. Economists polled by Reuters forecast the September consumer confidence index at 104.0, down from 105.0 in August.
There was a lot of concern after the August jobs data came out, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC, in Newark, New Jersey.
We want to see the consumer is not falling off a cliff, now that the employment market is showing some signs of weakness.
Concern about the consumer could escalate if crude oil sticks stubbornly above the $80-a-barrel mark, which probably will raise gasoline prices and cut into Americans' shopping budgets.
The dollar sank to a record low against the euro, which traded near $1.41, and reached parity with the Canadian dollar for the first time since 1976 after the Fed's rate cut this week. The dollar's drop sparked a rally in gold and oil since they are priced in dollars, making them more affordable for overseas buyers.
Gold prices rocketed to the highest levels since 1980. In New York, COMEX's most-active December gold contract touched $747.10 an ounce, while spot gold in Europe reached $739.
Rising gold prices, crude above $80, the falling dollar and rising yields on long-term maturities, that will probably cap stock market enthusiasm until earnings season begins, said Fred Dickson, market strategist and director of retail research at D.A. Davidson & Co., in Lake Oswego, Oregon.
While a weaker dollar is good for multinationals, which can sell more goods in overseas markets, a diminished dollar will make imports more expensive, possibly fanning inflation.
Wall Street will note the core personal consumption price index, one of the Fed's favorite gauges of inflation. The core PCE index will appear in the quarterly report on gross domestic product and the monthly data on personal income and consumption.
On Friday, the Chicago Purchasing Managers' Index will give the Street a picture of the health of manufacturing in the Midwest. The same day, the Reuters/University of Michigan Surveys of Consumers will offer a final snapshot for September of consumer sentiment.
HOUSING BY THE NUMBERS
On the heels of the Fed's rate cut, investors will slice and dice new numbers next week on the slumping U.S. housing market, the catalyst of the credit crisis that spurred the demand for the central bank to reduce borrowing costs.
August existing home sales data on Tuesday and new home sales on Thursday will be scrutinized to see how much of a further leg down can be expected in the housing market. Both reports are forecast to show a slowdown in sales.
Aside from the indicators, investors also will closely watch LIBOR, the London Interbank Offered Rate. Many adjustable-rate mortgages in the United States are benchmarked to LIBOR.
It has to come closer to the fed funds rate, we need to come back to a spread of about 15 basis points, Praveen said. That will indicate the credit and the interbank market are stabilizing. Credit market stability is very important for equity markets.
SO LONG, SEPTEMBER
While the earnings agenda is nearly bare, those scheduled to report include two major home builders. No. 2 Lennar Corp announces results on Tuesday and No. 5 KB Home is set to report on Thursday.
Next week marks the end of September and the end of the third quarter, meaning that much of the trading will be done by institutional investors rebalancing their portfolios.
There will be a lot of window dressing activity because of the quarter end, said Ed Peters, chief investment officer and director of asset allocation at Boston-based PanAgora Asset Management Inc.
It will be in the favor of stocks that have performed well lately, like technology and consumer staples.