US stocks may meander in a narrow range or slip this week, while the bond market will take centre stage due to concerns about rising interest rates.
Stock investors fear higher rates could put a crimp in the long-sought pickup in the US economy.
On Friday morning, the yield on the benchmark 10-year US Treasury note hit a one-year high of 4.59 per cent after the release of the July employment data. That report showed 44,000 jobs were whacked from US nonfarm payrolls in July, although the US unemployment rate fell to 6.2 per cent last month from 6.4 per cent in June.
"We're seeing more stock analysts look to the bond market, which is unusual," said Charles Ryan, vice president at BB&T Asset Management in Raleigh, North Carolina. "Investors are concerned because if rates stay high or continue to increase, it's going to cut off any pick-up in demand."
The jump in the 10-year note's yield stirs investor fears of rising rates for everything from home mortgages, which popped above six per cent this week for the first time since late last year, to credit cards and corporate loans.
This week, earnings will slow down from a flood to a trickle. A few big names, such as tech bellwether Cisco Systems Inc.; MetLife Inc., one of the largest US life insurers, and US Steel Corp., the nation's biggest integrated steelmaker. will report results.
Cisco Systems, the world's largest maker of equipment that directs internet traffic, will report earnings after the regular trading session ends tomorrow. Analysts will scrutinise any outlook from Cisco, which is seen as a key barometer of corporate America's health because of its broad customer base.
On the economic data front, durable goods orders, factory orders and the Institute for Supply Management's closely watched services index will catch the market's interest.
But after last week's earnings and data blitz, the first week of August will be almost as plain as a vanilla ice cream cone. More than 400 companies in the Standard & Poor's 500 index have reported earnings so far.
"There's not a lot going on... we're going to see what the words 'summer doldrums' are all about. Trading will be very subdued," predicted Hugh Johnson, chief investment officer at First Albany Corp.
Stock markets may extend their slide this week in reaction to the disappointing data released on Friday indicating that the US economy is still limping into recovery mode, strategists said. For the week, the blue-chip Dow Jones industrial average shed 1.4 per cent, while the Nasdaq edged down 0.87 per cent, and the broad S&P 500 lost 1.9 per cent.
"The unemployment data and ISM report - and the market's reaction to those numbers - will set the tone for next week, and the tone is that the market will continue to give up some of its gains, and the bond market will recover some of its recent losses," Mr Johnson said.
Stocks have rallied sharply since hitting 2003 lows in March on investors' hopes for an economic rebound in the year's second half. Since the closing lows reached on March 11, the Dow average and the S&P 500 have each gained about 22 per cent, while the tech-laden Nasdaq has soared nearly 35 per cent.
But since earnings season began, investors have been reluctant to drive stock prices higher until they see solid signs that the anticipated rebound is under way.
The S&P 500 has traded between 970 and 1,015 since early June, where it will stay for some time, forecast Jeff Swensen, a trader at John Hancock Advisers. He sees no major moves "until we get a better gauge of what the third quarter and second half is going to look like."
Today, June factory orders and June durable goods orders will give economists an idea about the state of the nation's struggling industrial sector.
June factory orders are forecast to rise 1.3 per cent, compared with May's 0.4 per cent gain, according to economists polled by Reuters.
The wild card will be June US durable goods orders; a forecast was not available late Friday. In May, durable goods orders rose 2.1 per cent. Durable goods are costly manufactured goods like washing machines and refrigerators, which are intended to last three years or more.