Short Trading Week Ahead

Next week is sure to be a busy week for the stock market as investors digest several big economic reports and the end of the second quarter ahead of the Fourth of July holiday on Friday. With average trading volume and the VIX index (i.e. volatility) both near their recent lows, investors should be prepared for a volatile week resulting in possibly a dramatic move for stocks — either up or down.

Beginning with the closing of the second quarter on Monday, volume is likely to be heavy as fund managers typically engage in window dressing — a strategy used to improve the appearance of a manager’s performance by selling stocks with large losses and purchasing those that performed well over the quarter in an effort to disguise any underperformance.

In addition, many studies have found that the stock market has a tendency to perform poorly on Mondays as bad news is often released over the weekend. Further, investors are usually more optimistic going into a weekend (especially a holiday weekend — as is the case this week), and thus bid up prices on Fridays only to sell them off on Mondays.

With the markets closed on Friday for Independence Day, Thursday will see a flurry of economic reports including the all-important employment report for June. Consensus is for 215,000 non-farm payrolls with the unemployment rate holding steady at 6.3%. Also on Thursday, we will see the usual weekly jobless claims numbers, as well as the May trade deficit and ISM Services readings for June.

Prior to these reports, investors will have plenty to digest Monday through Wednesday with Chicago PMI on Monday; Construction Spending, Auto Sales (focusing on GM’s report which will include the latest effects of their growing recalls), and ISM Manufacturing on Tuesday; and the ADP Jobs Report and Factory Orders due on Wednesday. Meanwhile, Fed Chairman Janet Yellen is scheduled to speak at the IMF conference in Washington about financial stability on Wednesday, while ECB President Mario Draghi will start his latest press conference on Thursday.

Considering the dismal economic reports that were announced in the first quarter of this year — capped by the -2.9% growth in GDP last quarter that was finalized this past week — all eyes will be on the upcoming economic reports this week and going forward for evidence of a rebound in economic activity. With the preliminary release of Q2 GDP data not expected until the end of July, the market will likely continue to tread water in the coming weeks, buoyed by next week’s reports.