NEW YORK — Although Wall Street appeared convinced last week that the Federal Reserve might be close to ending its string of interest rate hikes, upcoming data on the economy and corporate earnings could easily give investors another bout of indigestion.
Last Thursday, the Fed made its expected quarter-point increase on short-term lending rates, the 17th consecutive raise in two years. But in its accompanying statement, the central bank seemed to ease its stance on future rate hikes and acknowledged that the economy was moderating.
The change in language soothed Wall Street's concerns that the Fed might lift rates too high and topple the economy. Stocks soared, giving the Dow Jones industrial average its biggest one-day jump in more than three years.
But while the Fed may have moved a step closer to the end of its rate tightening, investors shouldn't get ahead of themselves, said Michael Sheldon, chief market analyst for Spencer Clarke LLC. Rates could keep climbing if inflation shows signs of accelerating, he said.
"As the Fed has said, future rate hikes will depend on economic data over the next several weeks," Sheldon said. "Investors do need to face the fact that the Fed might have more work to do."
For that reason, Wall Street will likely continue its obsession over the economy with key data on manufacturing and employment this week. And with the second-quarter earnings season starting soon, companies will begin issuing revised profit forecasts — early indicators of whether rising interest rates and energy costs have affected their bottom lines.
However, those data come during a week shortened for Independence Day. While stocks last week finally showed signs of bouncing back from the market's recent plunge, light volume is expected with many traders on vacation this week.
"We'll likely see range-bound trading," Sheldon said. "I'd be surprised if we saw a major move unless we get a significantly market-moving piece of information that changes the investment landscape."
The Fed news helped the major indexes to sturdy gains for the week. The Dow climbed 1.47 percent, the Standard & Poor's 500 index gained 2.07 percent and the Nasdaq composite index surged 2.39 percent.
Economic data
The Institute for Supply Management today releases the June reading of its manufacturing index, a widely watched gauge of economic activity. The index is forecast to edge higher to 55 from a level of 54.4 in May — any number above 50 implies expansion — but investors will be scouring the report for signs of rising inflation in the report's prices paid component.
Friday's Labor Department report on monthly hiring is the other critical datapoint this week since job growth is considered a key indicator of the economy's health. Employers are expected to have added 168,000 jobs in June, more than twice the 75,000 gain the previous month. However, a stronger-than-forecast rise in average hourly earnings could renew Wall Street's inflation worries.
On Thursday, the ISM also posts its services index for June. Growth in the nation's service sector is projected to slip to 59 from a reading of 60.1 last month.
Other reports this week could offer clues about the direction of the economy, including today's construction spending data and Wednesday's update on May factory orders. As usual, the weekly report on first-time unemployment claims Wednesday will be closely watched for details on the job market's health.