With US stocks holding up well in the wake of a pair of devastating storms that hammered the US Gulf Coast, investors are bracing for a wave of potentially bleak economic data this week.
But they're not worried. The broad Standard & Poor's 500 index closed out the third quarter with a 3.2 per cent gain, as investors breathed a sigh of relief that Hurricanes Katrina and Rita - while human tragedies - did not deliver a knockout blow to the US energy supply.
Strategists are prepared for some grim numbers in reports on employment, consumer spending and factory activity, as the immediate effects of the storms' disruptions become clear.
But they said investors have already priced the fallout into stocks and will be looking for details on the overall direction of the economy, which they believe remains on sound footing.
"The economic figures aren't going to look good in the third and fourth quarters," said Al Goldman, chief market strategist at A.G. Edwards & Sons Inc., of St Louis. "But the snake you see is not the one that bites you... The market is going to be lifting."
Key measures of consumer behaviour will come today, when the major US automakers are set to report September sales, which are expected to be down, and on Thursday, when major US retailers report their September sales.
The storms led to store closings along the Gulf Coast and surging gasoline prices pinched consumer spending even in regions not hit by the storms. US light crude oil futures ended trading on Friday at $66.24 barrel on the Nymex.
Both factors took a toll on sales. The monthly US jobs report, due on Friday, is expected to show non-farm payrolls contracted by 129,000 in September, according to economists polled by Reuters. That number will be watched as a key indicator of how spending is likely to hold up in coming months. "Probably we will see a weak employment number," said Owen Fitzpatrick, head of the US equity group at Deutsche Bank Private Wealth Management, of New York. "But the reaction will be relatively muted."
With weak consumer spending all but a given, Mr Fitzpatrick said investors early in the week will focus on measures of manufacturing and service activity.
The Institute for Supply Management releases its index of US manufacturing activity today, followed by a study of service industry activity on Wednesday.
A reading above 50 in either of these ISM indexes indicates growth in the sector. The ISM manufacturing survey index is estimated by economists polled by Reuters to have slipped to 52.0 in September from 53.6 in August. The ISM non-manufacturing survey is estimated to have slipped to 60.0 in September from 65.0 in August, according to economists surveyed in the Reuters poll.
If the numbers match the forecasts, the ISM indexes will show that US manufacturing and service-sector activity expanded at a slower rate in September than they did in August.
Mr Fitzpatrick said investors would look closely at both reports for any sign that corporate spending could make up for some of the sluggishness in the consumer sector.
US lawmakers have estimated rebuilding in Louisiana, Mississippi and Alabama could cost the federal government up to $200 billion.
"The market is trying to understand, 'Is the economy weakening to the extent that some of the sentiment indicators and unemployment claims have indicated?'" said Ernie Ankrim, chief strategist at Russell Investment Group, of New York.