Market Faces First Big Test Post Fed Today

Friday offers the first real test for stocks post Federal Reserve action, with five economic reports on the slate. If the data is sour enough, it could throw water on the Fed’s fire, which sent the SPDR S&P 500 (NYSE: SPY) and the SPDR Dow Jones Industrial Average ETF (NYSE: DIA) up 1.5% Thursday, and the PowerShares QQQ (Nasdaq: QQQ) up 1.4%.

The first big report is the Retail Sales Report for the month of August. Economists are looking for top line sales growth of 0.8% in August to match July’s pace. When excluding auto sales, economists see the same pace of 0.8%, also matching July’s pace. However, when excluding autos and gasoline, economists see sales growth of 0.4%, short of July’s 0.9% increase.

The Consumer Price Index (CPI) is set for release, and economists are looking for it to show a 0.6% increase for August. That would mark a sharp contrast from July’s price stagnation. When excluding food and energy prices, the Core CPI is seen increasing 0.2%, versus the 0.1% increase in July.

Industrial Production is expected to have contracted 0.1% in August, versus the 0.6% expansion seen in July. Manufacturing production is seen contracting a greater 0.2%, after growing by 0.5% in July. As a result, economists believe Capacity Utilization will have declined to 79.2%, from 79.4% in July.

The University of Michigan, with Reuters, reports its Consumer Sentiment Index. After the Conference Board’s big slide last week, economists see the Michigan figure dropping as well, to 73.5, from 74.3 at last report.

Business Inventories will be reported, and economists see a July increase of 0.5%. That matches against June’s increase of 0.1%. Just like with the wholesale data earlier in the week, you’ll want to compare the inventory to sales to get a better read of things.

Atlanta Fed President Dennis Lockhart has a speaking engagement at 1:00 PM EDT. It will perhaps offer some closure to the week, filled with Fed decision and a slew of important economic news. The day itself offers a true test for stocks though, as they’ll face data for the first time since the Fed action. My thesis is that over time, ongoing weak data and other factors will overcome false Fed hopes.

Overseas, European finance ministers are meeting in Cyprus, another distressed member of the EU, to discuss the direction of their debt crisis.

As for stocks, the SEC will be reviewing automated trading and how algorithms and anonymity have gone awry. They’ll be figuring out how to back up tricky technology capable of turning over a market. Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT), Republic Services (NYSE: RSG) and Dana Holding (NYSE: DAN) will all be presenting at a Morgan Stanley conference. Tyco International (NYSE: TYC) shareholders will vote on the spinoff of the company’s ADT home and personal security business. Towers Watson (NYSE: TW) has its analysts day, and EPS reports are scheduled for Ossen Innovation (Nasdaq: OSN), Sutor Technology (Nasdaq: SUTR) and WPCS International (Nasdaq: WPCS).

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