As the summer of discontent over runaway oil prices comes to an end, stock investors will pore over key US economic data, including Friday's August payrolls report and retailers' monthly sales figures, for signs of how big a toll crude's surge has taken on the economy.
With oil hitting a record $68 a barrel this week, Wall Street's fear is that consumer spending and corporate investment will suffer. When companies and individuals have to devote more of their available cash to pay more for gasoline, electricity and other energy costs, that leaves less to spend on business equipment, clothing or other items.
"With the increased focus on the potential of an economic slowdown, driven by the higher energy prices, anything that comes out of the economic data to either support or refute that is going to be key," said John Caldwell, chief investment strategist at McDonald Financial Group, of Cleveland.
On Thursday, major US retailers will report August sales, providing a gauge of consumer spending during the key back-to-school shopping season.
The same day, August US car and truck sales are due, with economists expecting a decline from July levels. A report on personal consumption also is due on Thursday, with the forecast calling for a gain, according to economists polled by Reuters.
The consumer confidence index for August from the Conference Board, a private research group, kicks off the week's economic calendar on Tuesday. The forecast calls for the index to slip to 101.5 from a previous reading of 103.2, according to economists polled by Reuters.
July factory orders, due on Tuesday, are expected to drop, compared with a previous month's gain.
In contrast, the Institute for Supply Management's August index of US manufacturing activity, due on Thursday, is expected to show a slight pickup in pace from July.
If a weaker-than-expected reading comes in on any of these data points, Wall Street could take that as a sign that high oil prices are weighing on the economy.
Oil's surge to yet another record this week took a toll on the major US stock indexes. On Thursday, US crude jumped to $68 a barrel, the highest price since oil futures started trading on the New York Mercantile Exchange in 1983.
For the week, stocks fell, giving up their mid-summer gains. The blue-chip Dow Jones industrial average finished the week down 1.5 percent, while the broad Standard & Poor's 500 index slipped 1.2 percent, and the tech-laced Nasdaq Composite Index declined 0.7 percent.
"A lot of the short-term action is dependent on oil prices," said Michael Metz, chief investment strategist at Oppenheimer & Co, of New York.
On Friday, though, US oil prices retreated late in the day on expectations that Hurricane Katrina would bypass oil and gas production in the Gulf of Mexico. NYMEX crude for October delivery settled on Friday at $66.13 a barrel, down $1.36.
A drop in oil prices from their current peak would likely drive stocks higher in the week ahead, strategists said. They also noted volume is likely to be light in the coming week, with many traders trying to squeeze in final vacation days.
The American Stock Exchange index of energy companies, which usually rises with oil prices, has fallen 5 percent in the last two weeks as crude has hit new highs.
Still, if oil prices continue their rally, it could signal trouble for equities.
On Friday, the Labour Department's employment report is expected to show that US nonfarm payrolls added 190,000 jobs in August, according to economists polled by Reuters. In July, the economy added 207,000 nonfarm jobs.
The data will dominate the week's agenda, with the wave of quarterly earnings reports from US companies near its end. Only four S&P 500 components due to report this week, including jeweller Tiffany & Co and tax preparer H&R Block Inc.
So far, 402 of the 482 S&P 500 companies that have reported earnings have met or beaten analysts' forecasts, with the group as a whole running 4.3 percent ahead of consensus estimates, according to Reuters Estimates.