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What to watch in markets this week: Tech stocks, the jobs report and more

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Sylvain Thomas | AFP | Getty Images

The first half of the year has flown by and stocks certainly have a lot to show for it.

The S&P 500 and the Dow Jones industrial average notched their biggest first-half gains since 2013. The tech-heavy Nasdaq composite, meanwhile, left them in the dust, surging 14.2 percent to post its best start to a year since 2009.

Technology stocks were a big driver for the broader market during the first six months of 2017, outperforming other sectors. But Wall Street’s favorite stocks have hit a snag recently.

To boot, investors will only have three full trading days to digest a slew of economic data. The stock market closes at 1 p.m. on Monday and will not open Tuesday because of the Fourth of July holiday.

As the first week of the second half of 2017 begins, here’s what investors need to watch: Tech, banks and key data about the jobs market and auto sales.

Fall in tech stocks keeps Wall Street on edge

Tech stocks were Wall Street’s darlings in the first half, with the sector rising 16.2 percent. Giants in the space like, Facebook, Apple, Google-parent Alphabet and Netflix have all spiked at least 17 percent in 2017.

That said, tech hit a slump in June, dropping nearly 3 percent during the month as high valuations led investors to pare down their tech positions.

“I think investors will be a bit on edge now that tech has shown signs of cracking, but this is not surprising given the run they’ve had,” said Mike Baele, managing director at U.S. Bank Private Client Reserve.

Added losses in tech are likely to push the stock market lower, so keep an eye on the sector. Tech’s slide, however, has led to money flowing into more neglected areas of the market, such as bank stocks.

Bank stocks back in vogue

Banks came out of their funk in June, with the SPDR S&P Bank exchange-traded fund (KBE) — which tracks large-bank stocks — advancing 5.8 percent.

Big-bank stocks got a boost last week after the Federal Reserveapproved share buyback programs and higher dividend yields for the big banks.

The central bank did not object to any of the buybacks or dividend hikes from the 34 banks it reviewed during the second phase of its annual stress test. This was the first time in the seven-year history of the tests implemented in the wake of the financial crisis that all banks have passed.

The Fed’s blessing, coupled with a recent rise in global interest rates, have some on Wall Street licking their chops to plow more money into bank stocks.

“I don’t think people are fully appreciating that these names were once dividend darlings and that they may become that once again,” said Steve Chiavarone, portfolio manager at Federated Investors.

On the economy: The health of the jobs market and monthly auto sales

This week we’ll get arguably the most important economic report of the month: The nonfarm payrolls report (also known as the jobs report).

Investors will know how many jobs were created in June, but the most important part of the report for investors will be how much wages grew last month. Wage growth not only indicates whether U.S. workers are making more money, but also if inflation in the U.S. is picking up. Inflation is a key component used by the Federal Reserve to determine their course of monetary policy.

The jobs report tends to be one of the biggest market-moving data points, so stay tuned … until Friday.

In the meantime, Wall Street will turn its sights to auto sales for June, an early indicator of consumer spending. Auto sales fell in May to a seasonally adjusted annual rate of 16.6 million as sales remain below December’s 18.3 million, a record.

Investors will also have construction, trade and manufacturing data to chew on this week. Here’s a summary of all the economic data slated for this week:

  • Monday: St. Louis Fed President James Bullard speaks, PMI manufacturing index, ISM manufacturing index, construction spending.
  • Wednesday: mortgage applications, factory orders, minutes from the Federal Reserve’s last meeting.
  • Thursday: Challenger job-cut report , ADP employment report, international trade, weekly jobless claims, PMI services index, ISM non-manufacturing index
  • Friday: Jobs report

The last word

Wall Street will have a lot on its plate this week as the second half kicks off: Bank stocks are showing signs of life, tech has been faltering and economic data will take center stage during a shortened trading week.

And while tech’s pullback may be scaring some investors, the recent action in the market is not the start of a bigger downfall, said Jason Hunter, a technical analyst at JPMorgan:

Tactically, the tone stays negative while below that short-term breakdown, but we do not think the current weakness is the start of a lasting and material correction. While we have been growing more concerned about a summer top pattern and potential correction into the fall, that medium-term bearish reversal pattern has not developed yet. Furthermore, the current weakness is, in part, driven by the bearish global bond price action. We actually view the resulting equity volatility and sector rotation as a potential medium- to longer-term positive.