Relief over moving past the crucial Federal Reserve meeting and power handover in Iraq may boost stocks this week, but trading will likely tail off as dealers wind down for the US July Fourth holiday weekend.
Weeks of stagnant trading have led up to the key June 30th date, when the Fed's keenly watched decision on interest rates coincides with the power handover in Iraq.
In addition, the market will be wading through a slew of economic data, including Friday's payroll data, Tuesday's consumer confidence survey and Thursday's manufacturing index.
John Shin, US economist at Lehman Brothers, said: "Everything's happening next week. We have the Fed, the payroll report and then for good measure on the political side, the handover of power in Iraq."
A Reuters survey of 39 strategists published on Thursday showed the market is now certain the US Federal Reserve will raise its key fed funds rate for overnight bank loans on Wednesday from its 46-year low of 1.0 percent to curb inflation.
Shin added that with the verdict so certain, the market would instead be "hooked on every word, every adjective in the statement."
"If the Fed makes the expected 25- (basis-points) rise and continues to use the phrase 'measured pace,' the equity markets will probably be relieved that it doesn't seem to be stepping on the brakes - and that will be a mild positive."
On Friday, both the Dow Jones industrial average and the Standard & Poor's 500 index ended modestly lower, while the Nasdaq closed slightly higher.
For the week, the blue-chip Dow average fell 0.4 percent and the S&P 500 dipped 0.1 percent, but the Nasdaq climbed 2 percent.
With the first half of the year almost over, the Dow is down 0.8 percent, while the Nasdaq is up 1 percent and the S&P 500 is up 2 percent.
While the Fed will likely steal the limelight next week, a blitz of economic data also will get Wall Street's attention.
The market will be sharply focused on Friday's non-farm payroll data, expected to show a gain of 250,000 jobs in June versus 248,000 previously.
Tuesday's consumer confidence survey could show a slight increase for June, according to HSBC.
Thursday's Institute of Supply Management manufacturing index for June could show a pullback from recent strength, according to HSBC, which forecasts a decline to 60, from a reading of 62.8 the previous month.
But there will be little on the earnings front as the quarter winds to a close. Among the handful of larger companies reporting is General Mills Inc, the Minneapolis-based maker of packaged foods, which announces fourth-quarter figures on Wednesday.
ConAgra Foods Inc, maker of Healthy Choice meals and Hunt's ketchup, reports fourth quarter data on Thursday.
The handover of power in Iraq will add to the market's tension, as investors fret over continued violence in the country. More than a year's occupation has failed to stabilise Iraq, which has the world's second-largest crude oil reserves.
Peter Boockvar, equity strategist at Miller Tabak & Co, however, said Iraq would have less impact on the market than the Fed's meeting.
"To say which way the market will go is impossible, but I think that with the Fed meeting and the possibility of moderating economic data, the market will have a tough time rallying from here," he added.
Stocks are likely to end the week on a quiet note as traders head off early to take advantage of the three-day holiday weekend.
Paul Cherney, chief market analyst at Standard & Poor's, said, "Thursday will be the last real trading day of the week and probably by Thursday afternoon, the desks will start to empty and that makes Friday a huge toss-up. It could be the lightest trading volume day of the year so far, as the three- day weekend becomes a four-day weekend for most people.
"But there's a positive bias in place and I think that stocks will be higher by the end of the week," Cherney added. "But huge gains are unlikely. It's not a table-pounding bullish situation, just a positive situation.
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