The holiday shopping season arrives just as investors are getting increasingly worried about the American consumer's willingness to spend.
Wall Street is entering the shortened Thanksgiving holiday week with a case of bad nerves. Credit markets have been seeing a continued massive flight-to-safety play that took yields on Treasurys to multi-year lows.
If you ignored the turbulence in the stock market, the Dow looks like it had a pretty good week, finishing up 1%. The S&P was up 0.3% for the week and Nasdaq was also up 0.4%.
But the angst about the consumer this past week increased as companies talked about cautious consumers, as they justified why they themselves became more cautious on their own earnings. Among them were Starbucks, J.C. Penney and Kohl's.
Key Data Points
The week ahead holds several key data points that will give either a window into the consumer or the housing market, a main source of the consumer's depression.
Home builder sentiment is reported Monday at 1 p.m. ET, and housing starts are released Tuesday morning at 8:30 a.m.
University of Michigan consumer sentiment is released Wednesday.
"I think confidence will get dinged," said CNBC's Rick Santelli. "I don't see any way around that. In my opinion, consumer confidence is kind of a lagging indicator."
He said one of the issues is whether the consumer will continue to keep "ponying up" if companies begin to pass along more of the costs they had been absorbing.
For instance, both delivery giant FedEx, which warned on earnings Friday, and Starbucks said they were impacted by rising commodities prices. It's the high fuel costs for FedEx and in Starbucks case, coffee prices. Both have passed along some of the costs to customers, and both lowered their earnings guidance.
Interestingly, Goldman Sachs analyst David Kostin in a report Thursday dissected the results and commentary from S&P 500 companies this past earning season. One area he focused on was pricing and costs.
He wrote that companies were consistent in highlighting rising costs for the third quarter, but six months ago it wasn't a worry. Managements now expect higher input costs but are keeping prices flat to slightly higher, and Kostin warned investors this trend means margin compression.
Kostin noted that companies have had mixed results when increasing prices to offset rising costs. Pepsi, for one, saw volumes decline when it raised prices, but Kraft was able to increase prices and improve volumes. He also included Nielsen consumer goods data which showed prices increased 3.9% over the last 12 months, but volumes declined by 1.5%.
Seems like the sign of a price sensitive consumer.
"It feels like we're at a tipping points with confidence," Mark Zandi, chief economist at Moody's Economy.com told me.
The stock market is "going nowhere fast" and the housing slump is worrying consumers. Some of the next shoes to drop will be in the job market, and he expects growth there to slow significantly. New jobs being created are now under 100,000 a month with revisions. By spring, he says that number could drop to 50,000 to 75,000.
"When you're in this kind of environment, things become self-reinforcing very quickly. That's why confidence is so important. if we see another month or two of what we saw in the last couple of months, I think the rubber band gets broken."
"If we're at $100 dollars for a barrel of oil, and that means $4 for a gallon of gas, that means the consumer's going to pack it in," he said.
Other economic news in the coming week includes leading indicators, reported Monday. On Wednesday, jobless claims are reported.
Markets are closed Thursday for the Thanksgiving holiday. Stock and bond markets close early Friday. Bonds and most Chicago futures markets close early Wednesday as well.
The Fed will issue its view of the economy along with the minutes of its last meeting on Tuesday afternoon. This will be the first look at the Fed's new, more transparent release, announced by Fed Chairman Ben Bernanke Wednesday.
Shop Til They Drop
For consumers, Friday is the big day. ShopperTrak forecasts it will be the busiest day of the shopping season. The next busiest day is expected to be Dec. 22, the Saturday before Christmas. Dec. 11 is expected to be the biggest on line shopping day, says CNBC's retail reporter Margaret Brennan.
In a note Friday Miller, Tabak's Tony Crescenzi writes: "Forecasts on the street center on a 2.5% increase for same-store sales for the season as a whole, about 1.0-1.5 percentage points lower than normal."
Zandi thinks "it'll be a passable Christmas. It won't measure up to the last Christmas, or the one before, or the one before that. Retailers will have to work really hard to even get four or five percent sales growth."
Jitters about the supbrime tsunami in credit markets hung over the markets this past week, and the idea of a resulting economic slowdown drove deep into the psyche of traders. From conversations I had this week, the big worry is slowing growth.
In the stock market, there were periodic bouts of hysteria around the financial stocks. But there were also moments of euphoria. Remember that gigantic 300-plus-point bounce up in the Dow Tuesday when Wal-mart had better profits and Goldman Sachs said it would not be taking any writedowns.
There was also relief around the appointment of NYSE Chairman and CEO John Thain as the new head of Merrill Lynch, a move investors believe will restore order to the biggest broker.
The financial sector finished the week 0.45% higher. In energy markets, reduced forecasts for demand challenged the idea that the world economy could support crude prices of $100 per barrel or more. Oil finished the week down $1.22 per barrel or 1.3%, at $95.10 per barrel.
Gold fell 5.6% for the week to $785.70. The dollar was up 0.1% against the euro and 0.2% against the yen.
Zandi says he changed his forecast for the economy in the last several weeks. "I'm growing more and more negative," he said. "I think 1% growth between now and the first half of the next year. It had been 1-1/2 to 2%...There are a lot of Starbucks-like things that are making me nervous."
"The other perspective on this is you have state economies that are probably in recession. It's not insignificant," he said. He cited California, Nevada, Florida, Ohio, Michigan and Wisconsin. "Florida's job market and Nevada's job market are so tied to housing," he said.
Earnings in the coming week include several retailers and Dow component, computer maker Hewlett-Packard. Campbell Soup and Lowe's report before the bell on Monday. Then Hewlett-Packard and Nordstrom report after the bell that day.
Builder D.R. Horton and Freddie Mac are reporting Tuesday, as does Target, the Limited and Whole Foods. Abercrombie and Fitch,Deere and Gap report Wednesday.
Goldman's Kostin highlighted three other significant earnings trends this quarter in his report. He said the housing market fundamentals will not improve until 2009; international demand is much stronger than domestic, and South America was frequently cited as a region with higher-than-expected growth.
What does this mean for stock investors? Negative earnings revisions for one, says Kostin. He also wrote that investors should look for companies that have high exposure to non-U.S. markets and sell those that have mostly domestic sales. Stocks that are most at risk to miss 2008 margin expansion projections are in the consumer discretionary, industrials and materials sectors.
Thanks to CNBC's Scott Cohn for taking us to Vietnam and China this month, and to Jane Wells for crossing the border into Canada to show us the impact of the weaker U.S. dollar this past week.
It's now Erin Burnett's turn to go global in the week ahead. She will travel to Dubai, a city firing on all cylinders, flush with petro dollars and literally home to architects who build grand dreams. Where else can you find the world's tallest building, the biggest mall and man-made islands.
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