Stocks should hold steady this week if the Federal Reserve on Tuesday says the economy is recovering and if corporations entering the heart of the so-called confession season go slow on profit warnings.
But job fears or data showing slow durable goods orders in August could hurt stocks, said analysts, who point out that the market has enjoyed a good run since it bottomed out last month.
Subodh Kumar, a market strategist at CIBC Markets, said stocks should hold firm this week unless there was a nasty surprise in the August durable goods data due Friday.
"The recovery in equity markets will continue. I think some of the fears on energy pricing are coming out," Kumar said. Economic data had been mixed "but that is not surprising," he added.
Against this background, Kumar said, "the durable goods number will be key."
On average, economists expect the data to show that orders, excluding transportation and defense goods, rose 0.8%. Durable goods are items meant to last at least three years.
As for confession season, September is on pace to be the worst month for profit warnings in about a year and a half, with companies issuing about two profit warnings for every raised forecast, according to Reuters Estimates. The final weeks of the quarter often herald an onslaught of revised forecasts as companies close the books on the period.
The market is set for the Federal Reserve to hike interest rates 25 basis points to 1.75% on Tuesday. Analysts said investors would be looking beyond the Fed's third rate hike of the year for reassuring signals that the economy is on a recovery path -- especially for jobs.
"The rate hike is pretty much factored in. Employment is still the key," said David Wyss, chief economist at Standard & Poor's. "There is worry about lack of job growth."
Also this week, earnings reports are due from four big Wall Street brokerages: Goldman Sachs Group Inc., Morgan Stanley, Bear Stearns Cos. and Lehman Bros. Holdings Inc.
These reports are often seen as a bellwether of the overall performance of financial markets. CIBC's Kumar said it would help the market if all four reported favorable results. Otherwise, jitters about corporate earnings warnings could continue to weigh on stocks.
So far the third quarter has seen 583 negative earnings preannouncements, up from 362 for the same period last year, according to Reuters data.
Companies issuing profit warnings have cited high energy prices, slower consumer demand and overall pricing pressure on products as reasons for missing forecasts.