KEY POINTS:
Wall Street will watch this 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 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 per cent, while the S&P 500 also advanced 2.8 per cent and the Nasdaq rose 2.7 per cent.
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, a 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."
Last week, specialty glass maker Corning said third-quarter profit will be in the high end of its forecast range, while online brokerage E*Trade Financial warned it expects to report full-year earnings per share sharply below its previous forecast.
This 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.
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.
"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 above the US$80-a-barrel mark, which probably will raise petrol prices and cut into Americans' shopping budgets.
The dollar sank to a record low against the euro, which traded near US$1.41, and reached parity with the Canadian dollar for the first time since 1976 after the rate cut late week. The US 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.
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.
- Reuters
