All Eyes on Europe's Debt and U.S. Unemployment

The market has been more temperamental than a teething 2-year-old. The Dow Jones Industrial Average (INDEX: ^DJI) only fell 6% in September, but it felt more like 20% with the daily swings up and down. But September is finally over and we're heading into a few fast weeks of economic data and earnings releases.

With stock market and macroeconomic factors taking new twists nearly every day, it's hard to keep up. So let's focus on the coming week's data and news that are going to matter most to your bottom line.

It's the Unemployment, Stupid

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The biggest news this week will be the monthly unemployment rate, which will be released on Friday. Last week, initial unemployment claims fell to 391,000, the first time since April that the weekly claims number had fallen below 400,000.
This week, analysts polled by said that they're expecting initial claims to climb back to the 400,000 mark and the unemployment rate to hold steady at 9.1%. A surprise on either side of this expectation could send the market into a further panic or quiet fears that we're headed into a double-dip recession. Watch this closely.

Half a World Away, But Closer Than You Think

As important as our problems are here in the U.S., it's the debt crisis going on in Europe that's been driving the market lower over the past month. Last week, Austria joined many of the 17 members of the euro currency zone in voting to expand the group's bailout fund. That leaves votes at Malta and the Netherlands this week, and potentially Slovakia shortly thereafter.

This may seem like a bailout of finances half a world away, but Greece's debt levels have climbed so high that without the bailout fund, the country would be on a quick path to default. That could start the dominoes falling: Banks like Bank of America (BAC), Citigroup (C), and JPMorgan (JPM) have holdings in Europe that could come under pressure; yields would rise on other eurozone countries with debt problems, and our faltering worldwide recovery would likely crumble.

If this bailout goes off without a hitch, we may see some confidence return to the market. If not, the panic could be extreme.

The Macro Bottom Line

For all the near-panic we've seen from investors in the past two months, the overriding economic data haven't been as bad as you might think. Unemployment is holding steady, corporate earnings are very strong, and household balance sheets are strengthening. And some data suggest that general conditions are improving: Just this morning, the Institute for Supply Management released its index of factory activity, which rose to 51.6 from 50.6 in August. A higher index level suggests expanding manufacturing activity, one of the foundations of the economy and a possible recovery.

If Europe does its part this week, and we see improvement in unemployment, sentiment may begin to change.

Motley Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, and check out his personal stock holdings. The Motley Fool owns shares of JPMorgan Chase, Bank of America, and Citigroup.

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