WEEK AHEAD: Mortgage Madness, Brokerage Earnings and Lost Sleep
That hour of sleep you lost this weekend thankfully was not over the stock market's performance last week. After starting Monday on the edge of what could have been an ugly precipice, Wall Street by Friday recovered some of its losses and a good deal of confidence.
The week ahead brings some key economic data, earnings reports from the brokerage industry, an OPEC meeting and the usual swirl of craziness that surrounds college basketball finals. Treasury Secretary Hank Paulson hosts a summit of economic luminaries Tuesday, and CNBC releases the results of its latest wealth in America survey Wednesday. The President winds down his visit to Latin America with stops in Columbia and Mexico early in the week, and the whole world watches talks between the US, Iraq, Syria and Iran.
The Dow Jones Industrials gained 166 points or 1.3% for the week, putting it 510 points below the all time high of Feb. 20 and off 1.5% for the year. The S&P 500 rose 1.1% and the Nasdaq finished up 0.8% for the week.
The worrisome subprime mortgage market should certainly continue to make headlines, as we watch Wall Street earnings for any sign of related pain and listen for the continued dropping of shoes from the mortgage lending industry.
Investors will continue to watch if subprime woes are merely a ripple or become a bigger wave in the markets, capable of swamping the lower decks of some financial institutions.
The Sunday New York Times front page story on mortgages, "Crisis Looms in Mortgages," gives the story plenty of perspective and certainly suggests that there is more to come. The article describes an industry gone wild that Wall Street also managed to miscalculate. Thomas Lawler of Lawler Economic and Housing Consulting says in the article: "It's not that the mortgage industry is collapsing. It's just that the mortgage industry went wild and there are consequences of going wild." The next step, one could surmise, is that government will go wild trying to control it.
Speaking of which, the House Financial Services panel holds hearings on regulation of Fannie Mae and Freddie Mac Monday. Hedge fund regulation will be discussed by the same committee Tuesday.
Brokers report earnings, starting Tuesday with GoldmanSachs , then Lehman reports Wednesday and Bear Stearns reports Thursday. The firms are expected to show the same positive trends that boosted profits last year, but we'll be watching for what they have to say about the outlook.
GM is scheduled to report its delayed fourth quarter earnings by Friday. It needed time to correct numbers from prior quarters. GM's former finance unit, GMAC also needed more time to complete reports and measure the potential impact of subprime lending on GMAC's book value.
When Bad News Is Good
Even the slightest signs that the economy is weakening have so far endorsed the idea in some investors' minds that the Fed will be forced to cut rates this spring, a flashing buy sign to some bulls. So we looked at the Fed funds futures to see what traders in that market are betting on.
"Based on the July Fed funds futures, there's a 30% chance of a 1/4 point rate cut by the end of the June meeting,," interprets our Rick Santelli.
Our Steve Liesman made an interesting observation about this. "(Former Fed Chairman) Greenspan says there's a one in three chance of a recession, and the market is saying there's a one in three chance of a rate cut. They are trading on the recession risk inside a rate cut," Liesman notes.
But Santelli says traders there do not have serious expectations of a rate cut. "If you grabbed 20 really good Treasury traders, I think they'd talk to you more about growth than they would recession," he adds.
"The market's still more concerned about growth than inflation ... and the Fed continues to say it's more concerned about inflation than growth. I think the most important data of the week will be Tuesday's retail sales," says Santelli.
For those watching the data, retail sales for February are released at 0830 a.m. EDT Tuesday. The inflation measures of producer prices and consumer prices are reported Thursday and Friday, respectively. The Philly Fed Survey and Empire State Manufacturing data are both released Thursday.
All day Wednesday, Liesman will guide us through CNBC's wealth in America survey, and we
should get a good look at how Americans are viewing and impacted by the economy.
Which Act Is The Headliner?
For those who watch the newsmakers of the financial markets, there's quite a gathering in Washington this week. At Georgetown University, the Treasury department has amassed two
impressive panels to discuss capital markets competitiveness Tuesday morning.
One of those panels includes former Fed Chairmen Alan Greenspan and Paul Volcker, and former Treasury Secretary Robert Rubin, now at Citigroup. The other includes Berkshire Hathaway Chairman Warren Buffett, GE Chairman and CEO Jeff Immelt (GE, of course, owns CNBC), JP Morgan Chairman and CEO Jamie Dimon, Charles Schwab founder Charles Schwab and NYSE chairman John Thain. SEC Chairman Christopher Cox and Secretary Paulson will be the moderators. CNBC will be there and bring you coverage on TV and on CNBC.com.
Speakers On The Road
Greenspan, who has been making all kinds of headlines lately, speaks in Florida on Thursday at midday. Fed Governor Kroszner speaks on inflation dynamics in Washington Monday. There is a question and answer period following.
OPEC meets in Vienna Thursday and CNBC Europe will be there to cover it. Crude oil ended the week, down 2.6% at $60.05 per barrel on NYMEX, while gasoline rose three cents to $1.9021, a level that is getting everyone's attention. Fimat senior vice president John Kilduff says OPEC
is not expected to take any action though it will issue an official communique.
"I think you're going to hear a lot of rhetoric," said Kilduff. He says OPEC members will opine: "The current price is fair, the $60 (a barrel) is fair and they are committed to maintaining production to maintain that price level ... they're not going to change the quota right now."
Hoops Gone Wild
Our Darren Rovell will guide us through the NCAAs with insight that only he can deliver on the financial impact of these widely watched (or secretly watched) games since many take place during the business day. In fact, CNBC will bring you scores so you can watch TV for stock market news and sneak a look at how your teams are doing, and Rovell's coverage will be available on CNBC.com for the duration of the games.
A Timely Story
Our Bertha Coombs told us Friday how business was handling the early Congress-mandated switch to daylight saving time this year and will report Monday on whether there was any impact as computer clocks sprung ahead an hour over the weekend.