Wall Street braces for turbulence and "September effect"

       As caution creeps back into Wall Street, investors have pulled back to consolidate recent hefty gains amid questions about whether stocks have hit their peak for 2009.
       Losses last week came after a historic rally for the broad market - the S&P is up nearly 50% since March - and amid jitters about the "September effect" reflecting a historically weak period and last year's market calamity in September.
       Wall Street's mettle will thus be tested as traders return from the last long weekend of the summer to resurfacing signs of weakness. The spectre of September may also make investors more inclined to sell. Markets closed the first week of the month with the worst weekly performance since early July, though the bulk of losses were recouped on Friday as investors deemed employment data to be less dire than expected.
       Increased volume last week has investors keen to see what direction the market will take when trading reopens tomorrow after the Labor Day holiday.Stronger downside volume may signal more bearishness.
       "What you'd like to see is some evidence that players came back from the weekend and that they're starting to move assets to this market," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis."This whole advance has largely been [because] people quit selling."
       The August decline in non-farm payrolls was the smallest in a year, but the unemployment rate rose to 9.7%, a 26-year high. Analysts expect unemployment to remain high even as the economy turns around.
       The pickup in market volume does not necessarily mean Wall Street's party is over, and a continued rally on strong participation will support the bulls' case.
       So far, pullbacks have been viewed as buying opportunities by those eager to get a foothold into the market. With only second-tier economic data on tap this week and slim earnings releases until the next quarterly reporting season,stocks will be relying on those buying opportunities to churn higher.
       The Dow fell 1.18% last week to close on Friday at 9.441.27. The Nasdaq dipped 0.49% to 2,018.78 and the S&P index shed 1.22% to 1,016.40.
       September has historically been one of the nastiest months of the year, a notoriety solidified last year by the collapse of Lehman Brothers, the takeover of Merrill Lynch and the bailout of AIG.
       Since 1900, the S&P has posted positive one-month gains in September in slightly fewer than half of all instances, according to research by Tobias Levkovich, chief US equity strategist at Citigroup.
       Analysts say the pattern of declines in autumn is well known and could already be priced into the market. Even so, the ghosts of Septembers past are fresh enough that investors may be keeping their fingers on the sell trigger.
       "The fact that we got a big volume spike last week on a decline in the market is something I want to see if there's follow-through on," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.
       Health-care stocks will be in focus with President Obama set to address a rare joint session of Congress on Wednesday in an effort to reinvigorate his push for health-care reform.
       The insurance industry strongly opposes a proposed government-run health insurance plan and investors have fretted over what the "public option" could mean for corporate profits. If Mr Obama is able to sway public opinion, insurance and related stocks could face a sell-off.
       Wall Street faces a light week of economic data, but preliminary September consumer sentiment data will be watched, as a strong economic recovery will be impossible without improved discretionary spending.
       Also expected are data on the US trade balance and the Federal Reserve's Beige Book covering anecdotal evidence of economic conditions.