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Week Ahead: Credit Worries Abound

Credit worries and concerns that the economy is slowing are likely to continue sending shock waves into the stock market in the week ahead. But any signs that the holiday shopping season will be stronger than expected could help confidence.

Housing data, the Fed's beige book on economic activity and consumer confidence are among the data points investors will be watching. The first glimpse at how retailers fared during the Thanksgiving weekend should be available early in the week, and a slate of retailers will report earnings.

As of Friday's close, the S&P 500, a broad index of major stocks, returned to positive territory for the year, up 1.58%. The Dow and the Nasdaq are up for the year to date by 4.16% and 7.51%, respectively.

In a sign that some retailers are weathering fears of an economic slowdown, shares of merchants including Macy's and Best Buy jumped during Friday's shortened trading day as bargain-hungry consumers stormed stores and shopping malls.

Credit Market Seizure

There was a certain level of hysteria around the financials and the credit markets in the past week, starting with a Goldman Sachs analyst report saying Citigroup could take more writedowns. Also, Freddie Mac reported a $2.3 billion loss and said it was looking to raise capital and that it may cut its dividend in half.

"This has been one of the most eventful weeks," Jeffrey Gundlach, chief investment officer of TCW Group, said just prior to the Thanksgiving holiday. "Freddie Mac and Fannie Mae were supposed to be helper outers, not be compounders of the problem."

"You have the Treasury market looking like the Fed should be cutting 150 (basis points)," Gundlach said.

Jim Galluzzo of RBS Greenwich Capital said on Wednesday that a big wave of fear returned to the credit markets about a week and a half prior, and the markets have traded with a high level of skittishness every day thereafter. "This is not just an, 'Oh well, we're getting some weak data.' This is a systemic problem," said Galluzzo, who trades short-maturity T-bills.

"It started with people getting bad loans to buy houses, and it's bleeding all over the place," he said. "Things are going to get worse before they get better. The question is how much worse." Good question.

Earnings Central

Retailers reporting in the week ahead include American Eagle, Staples, and Talbot's on Tuesday; Men's Wearhouse and Dollar Tree on Wednesday, and Sears on Thursday, and Big Lots and Tiffany on Friday. Other companies reporting include Analog Devices on Tuesday; Del Monte and Smithfield Foods Thursday. Dell also reports after the bell Thursday.

Econorama

Housing data will be a big focus for the markets, which have been spooked by the specter of more mortgage meltdowns and a consumer, distressed by a poor housing market. On Wednesday, existing home sales are reported at 10 a.m. and on Thursday, new home sales are reported at 10 a.m. Consumer confidence is reported Tuesday at 10 a.m. The Fed's Beige Book on economic activity is released Wednesday at 2 p.m.

GDP is reported Thursday at 8:30 a.m. Jobless claims are reported Thursday, and personal income and outlays is released Friday at 8:30 a.m. Construction spending and the Chicago purchasing managers are released Friday at 10 a.m. Redbook and UBS store sales may be interesting this week because of the holiday shopping implications. They are reported Tuesday morning.

The weekly government inventory reports will be released Wednesday for oil, and Thursday for natural gas at 10:30 a.m.

Bearish or Bullish?

CNBC's Larry Kudlow has a sunny attitude when it comes to looking at the economy and the markets. Right now, he thinks investors are too negative. "The Fed is spinning out a Goldilocks scenario. They are going to cut rates," he said. "Why are investors ignoring this?"

More interesting is something I'll call the Kudlow bullishness meter. "We're having a hard time finding bulls to have on the show," he told me. Well, that was surprising, since bulls seem to roam Wall Street.

For the past two weeks, though, there's been a surplus of bears and not enough bulls to suit Kudlow for "Kudlow and Co." But that might not be all bad. The more negative the view, the closer we get to a bottom, he said.

Questions? Comments? marketinsider@cnbc.com

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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