Following the stock market in August was simply exhausting. The S&P 500 entered the month with a six-session losing streak at 1,293 and then managed to fall another 14% by August 8 to 1,119. A few more neck-snapping moves after that, and we’re now back up above the 1,200 mark again. Taking a longer view, the market is right back where it was nine months ago.

What will September hold for us? Hopefully something a little more boring. But you can’t be complacent, even if the market has regained some of the ground it recently lost. In fact, the economic calendar holds plenty of surprises for us in the two weeks after Labor Day. Here are some items worth watching beyond Friday’s monthly jobs report. How they shake out could wind up making or breaking your portfolio in September and the months ahead…

Back to school
Look for several key measures for retail spending, giving a clear read on whether parents are sending their kids back to school with new clothes, or are content with hand-me-downs. On Wednesday, Sept. 7, watch for the Redbook Survey, put out by Redbook Research. The survey tallies results across a wide range of retail chains, including the all-important Labor Day sales promotions. The Redbook survey comes out at the same time as the ICSC-Goldman Store sales, which checks the pulse of mall operators and shopping centers.

Beige Book
We’re not done with Sept. 7. This is also when all of the Federal Reserve regional Governors weigh in with reports on local economic activity. The Fed watches this data quite closely, and if the Beige Book shows clear signs of economic weakness, this would actually be a positive for the market because it boosts the chances Ben Bernanke and friends take real action when the Fed meets again in late September. Investors are boosting stocks right now on hopes that the Fed will indeed provide more juice to the economy. It’s not a fundamentally bullish reason to like stocks, but that’s what the herd does, and sometimes you can’t fight them.
Yet it’s the following week that may really set the tone for the rest of the month — and beyond — because we’ll get a slew of important economic reads.

Producer Price Index (PPI)
Wednesday, Sept. 14, stands out in particular. For starters, we’ll get the latest feedback on the Producer Price Index (PPI). Few expect to see any signs of inflation right now because the economy remains in slow-growth mode. Yet there is a growing chorus of inflation hawks that express concern about rising prices, and their lack of attention from the Fed. Simply by looking at recent PPI readings, they have nothing to be alarmed about. In fact, the slightly-concerning reading of 1.5% in February — the highest in the past two years — now looks to be the high water mark for the year.

 

But the inflation hawks peek behind the curtain to see how economic potential relates to economic capacity, known as capacity utilization. The figure stood at 77.5% in July, the highest reading of the year, and economists generally spot bottleneck pressures (which leads to price hikes) when the figure crosses 80%.

Looming pressures?
Are our nation’s producers running into bottlenecks? Well, on the same day the PPI is announced (9/14), we’ll get a fresh look at business inventories, which are quite lean. The inventory-to-sales ratio stood at just 1.28 in June, not far from the historic low of 1.23. Trouble is, if the economy shows any real improvement in coming weeks and months, then manufacturers will need to step on the gas and start building inventory levels.

Which brings us back to that that 77% capacity utilization level. As slow as things may seem right now, any economic uptick may put us closer to pricing pressures than many suspect. The capacity utilization reading will be released on the very next day, Thursday, Sept. 15. This is an important, but little-known number to watch.

Capping off what should be an active week, the government will also release data on consumer prices (CPI), weekly jobless claims and the University of Michigan’s Consumer Sentiment Survey. By the end of the week, we’ll have a pretty good idea whether the Federal Reserve will take the bold steps at their late September meeting that the recent market rally seems to be anticipating.

Risks to consider: Trading volume remains relatively weak if you exclude the recent few weeks. If volume drops again after Labor Day, then any of these economic items could have an outsized impact on market volatility.

Action to Take –> We live in strange times. Investors will likely prefer weak economic data in coming weeks to help the markets continue their upward move. Stronger-than-expected data, perversely, would be bad for the markets, because they diminish the likelihood of any Fed action.

Against this near-term backdrop, the converse is true for long-term investors, many of whom would like to see the U.S. economy get going already and are little-heartened by short-term inducements from our nation’s central bank.

If you’re a long-term investor, don’t be surprised this month when good news causes stocks to drop. Now, you’ll know why. Instead, be ready to pounce on any short-term weakness, using the opportunity to scoop up shares of companies on your watch list on the cheap.