Extreme volatility will likely rip the stock market again in the coming week, while investors consider fresh economic data and a last blast of earnings news. Tuesday marks one month to the day before the Fed's next rate meeting.
The bond market and some futures markets are closed for the Veterans Day holiday Monday. Stocks, stock futures and the Nymex are open.
The past week's volatility took a big swipe out of financial stocks and the techs, which had been a market leader. Credit worries returned to the market with a fury along with some new writedowns at financial firms and continued rumors of more. Credit markets were again rattled, and spreads widened dramatically in another flight to quality move. There was more talk that corners of the credit market were showing signs of being dysfunctional.
"At this stage in the game, we've sort of got the financial markets overreacting to these big writeoffs," said Mesirow Financial chief economist and managing director Diane Swonk.
"My sense is that the actual writeoffs in this industry ... even the most aggressive estimates are now less than the (stock market's) ... expectations. We're now in a situation where there's overshooting going on. Unfortunately it's only time that heals all wounds, and we need time," said Swonk.
For the day, the Dow Jones industrial average was down 223.55 points, or 1.69 percent, at 13,042.74. The Standard & Poor's 500 Index was down 21.07 points, or 1.43 percent, at 1,453.70. The Nasdaq Composite Index lost 68.06 points, or 2.52 percent, to 2,627.94.
The dollar, a big factor in the past week's trading, hit a 1-1/2 year low against the yen this past week, trading as low as 110.52. The euro hit a peak of $1.4752, its highest level since its inception in 1999.Mood Swings
Scotsman Capital Management managing director Vince Farrell expects the stock market's bipolar behavior to continue for the time being. "I think extreme volatility will continue, but at some point the volatility will be on the upside," he said. "I don't think we're through it yet."
Farrell holds some big cap bank stocks at market weight and has stuck with them. A CNBC contributor, he admits "we're catching a falling knife" but he's done it before. He was also adding lightly to his position recently. "We have conviction that these prices are going to prove out to be good prices," he said.
It's best not to play the rate cuts game with your stock investments. But nonetheless, investors have built in expectations for another move by the Fed in December even though it has signaled November's cut may be the last for now. Fed Chairman Ben Bernanke's comments before a congressional committee Thursday were scrutinized and dissected by traders in all markets, and again there was the same message: There is no guarantee the Fed will cut rates.
But the markets disagree, and Farrell says he too believes the Fed will cut in December. "We're in a financial crisis," he said. The Fed trimmed its target Fed funds rate and discount rate by a quarter point Oct. 31.
Bernanke on Thursday opened his testimony by saying that despite recent data showing economic resilience, growth should slow "noticeably" this quarter and into 2008 as the housing slump intensifies. But he also made it clear the Fed stands ready to fight inflation.
Swonk doesn't see a rate cut coming. "Bernanke's comments I thought were a little defensive, but basically reflecting the conflict and lack of consent at the last (FOMC) meeting ," she said, noting he was a little more hawkish despite his comments about slowing growth.
"There's a sense of a learning curve that perhaps all the risk management they did contributed to bubbles elsewhere in the economy down the road and that the cure carried with it too much excessive liquidity ... There's a sense of pullback there," she said.
"I don't expect the Fed to move again, at least not in December," said Swonk.
Next week and in the next couple of weeks, the debate about the Fed will continue, as well as the debate about just how much the economy is slowing down.
The big item on the economic calendar in the coming week is retail sales data for October, scheduled for release Wednesday. If October's chain store sales are any indicator, the report will be less than stellar.
Inflation data in the form of producer prices and consumer prices are reported Wednesday and Thursday, respectively. Business inventories are reported Wednesday. On Thursday, jobless claims, Empire State Manufacturing and the Philadelphia Fed Survey are reported. Industrial production is released Friday. Also on Friday, the Treasury releases monthly International Capital data on the holdings of US securities by foreign investors. We'll see what trends developed there as the dollar continues to weaken.
Nymex crude oil for December delivery rose 39 cents on the week, or 0.4%, to settle at $96.32. Nymex RBOB gasoline for December delivery rose 1.65 cents, or 0.7%, to settle at $2.456. MF Global senior vice president John Kilduff says it's still on the road to $100 per barrel.
"The catalyst that stopped crude in its tracks and sent it lower was the re-emerging capital markets concerns about liquidity and the subprime issues. And Bernanke's comments about the slowing economy is the one bull market killer for oil that is out there. But to the extent the economy continues to hold up, the rally will be back on," said Kilduff, a CNBC contributor.
"Next week, we're going to have that options expiration on Tuesday that should create some volatility. Any of the elements that have calmed down a bit could be inflamed again. We're still within earshot of $100 and we're still going to get there," said Kilduff.
Another event for the oil markets is the Nov. 17 OPEC meeting in Riyadh, Saudi Arabia. Kilduff said it's not a full-blown ministerial meeting and no action is expected.
Daniel Yergin, Cambridge Energy Research Chairman, will be traveling to Saudi Arabia to attend the meeting and related events.
"Oil decision-making is not on the agenda for the OPEC heads of state meeting in Riyadh," said Yergin, CNBC's global energy analyst. "That will be the topic for the oil ministers, when they meet in Abu Dhabi in the first week of December. Still, there will be some discussion of course about supply and demand in Riyadh."
"A lot of more-explicit discussion can be expected on the sidelines in Riyadh about a tangle of key questions -- oil prices and the weakening dollar, demand destruction from $90-100 oil, let alone $100-plus oil, and what is actually happening in the US and by extension to the world economy," said Yergin. "That will set the stage for the December meeting. What happens to the economy between mid-November and early December will have a big impact on the Abu Dhabi meeting."
The grand finale of earnings season is upon us.
Thomson Financial data shows earnings for companies reporting so far are down 4% from last year's third quarter level and revenues are up 6.2%. eighty-seven percent of the S&P 500 companies have reported so far, and 65% have beaten estimates while 23% missed analysts' estimates.
This week, big retailers and a mix of companies, including financial firms, materials firms and more tech report.
In the retail group, Home Depot and Wal-Mart report before the bell Tuesday. TJX also reports that day. On Wednesday, Macy's and PetSmart report, and on Thursday, it's JC Penney and Kohl's.
Otherwise, Blackstone Group, Tyson and EchoStar report Monday. Vodafone and Fortress report Tuesday. On Wednesday, Arcelor Mittal and Applied Materials report. Thursday we hear from Suntech Power, Vera Sun, Tyco and Starbucks. Friday is the day Agilent and Autodesk report.
Where in the World?
CNBC's Phil Lebeau is traveling the world this week. At the beginning of the week, he will cover the latest in aerospace from the Dubai Air Show, a big annual event. But by Wednesday, he will be halfway across the world in Los Angeles, reporting from the LA Auto Show.
Viva Las Vegas
There's a lot going on Vegas this coming week. The G2E gaming conference is Tuesday to Thursday, and Goldman Sachs holds its gaming conference in Las Vegas the same days. Merrill Lynch, meanwhile holds a conference on leveraged finance there Tuesday and Wednesday.
The National Association of Realtors annual conference is also in Las Vegas Tuesday to Friday. We know a couple of realtors going to that and hope to hear their views of how their counterparts are feeling about the business.
Bear Stearns holds a mid-cap investor conference in New York City Tuesday and Wednesday. Morgan Stanley has a global consumer and retail conference in New York Tuesday through Thursday and UBS has its global technology and services conference in New York the same days.
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