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Market Insider/Friday Look Ahead

Reports of more writedowns at Merrill Lynch and credit wrinkles at American Express are outweighing the relief that Bank of America is swooping in to buy troubled Countrywide.

The New York Times today says writedowns at Merrill could be as much at $15 billion when the company reports earnings next week. CNBC's Charlie Gasparino has been reporting that the Merrill number was going to take another big writedown of $12 billion or better after its third quarter writedown of $8.4 billion.

Thursday's wild swings ended with a triple digit Dow gain and optimism that a deal between Bank of America and Countrywide could remove one of the market's big worries. But Friday, there are questions about whether the $4 billion deal is really a good thing for Bank of America, known to be a bargain hunter.

Washington Mutual, another company big in the mortgage business, has seen its stock under pressure but got a bounce on the Countrywide deal. Gasparino reports there may be a real reason for that move and that J.P. Morgan could be an interested buyer.

That deal will continue to be a focus in Friday's markets, as will a late day warning from American Express of weaker than expected fourth quarter earnings and weaker spending by card members. There are a few data points, including trade and import and export prices before the bell. Federal Reserve Gov. Frederic Mishhkin also speaks on monetary policy at 12:45 p.m. ET.

The Wall Street Journal first reported that Bank of America was in talks to buy Countrywide Thursday midafternoon, news that sent stocks soaring and pushed a lagging dollar higher. The market had failed to gain much traction after a brief Bernanke-inspired rally earlier in the afternoon.

The fate of the biggest U.S. mortgage broker has been a topic of much market chatter this week, including speculation Countrywide could go bankrupt. Countrywide denied those rumors, but its declaration did not stop the speculation or the decline in its stock.

Thursday started with word that credit card company Capital One is taking a $1.9 billion provision for loan losses and was cutting its full year forecast by 20 percent. Capital One said it is being impacted by lagging payments by card holders. A batch of soft December chain store sales also dampened early sentiment, but retail stocks took it in stride and many closed higher on the day.

Thursday's session was followed by an after-the-bell warning from blue chip card company American Express that shows even its well-heeled customers are having problems. American Express said it sees weaker spending by its card members and blamed a slowing economy. It said it would take a $440 million pretax charge to boost reserves.

Corporate Stories

Also after Thursday's bell, Microsoft said it was replacing Jeff Raikes with Juniper's chief operating officer Stephen Elop as president of the business division.

Another story to watch Friday will be follow through on the airline industry's latest merger dance. Delta's CEO will be asking that company's board Friday for permission to begin merger discussions with UAL and Northwest with a view of choosing the best offer.

Thursday's Action

The Dow finished up 117 points, or 0.9 percent at 12,853. Nasdaq was up 13.97 at 2488, and the S&P was up 11, or 0.8 percent at 1420.

Gold added another $12.20 per troy ounce, closing at $891.70. Oil continues its decline on concerns about economic weakness. It finished the day at $93.71, off 2 percent.

Commodities will be in the spotlight Friday when a series of major reports are released on grain crops. The USDA crop reports are released at 8:30 a.m.

Too Little, too late?

Fed Chairman Ben Bernanke gave the market just what it wanted to hear when he spoke Thursday afternoon, but traders say he gave little more. Stocks initially moved up on his comments that the Fed is ready to be aggressive and would be willing to take "substantive" moves if necessary. That started talk that the Fed is now ready to cut its target Fed Funds rate by a half a point, instead of a quarter, when it meets at the end of the month. It also had traders betting the Fed would be more aggressive than expected in coming months.

Not Buying Recession

NBC News Correspondent David Gregory interviewed President Bush Thursday, and he said he's not buying into the idea of a recession yet. The interview, to air on the Today show Friday, also touched on Bush's consideration of a stimulus package. So far, he has not made a decision on whether to introduce a plan.

"I recognize there's uncertainties, and I'm optimistic that this period of uncertainty will be resolved in a positive way for the economy. Look, I recognize there's issues and we're taking measures such as the housing issue to help people stay in their homes. Congress can pass some legislation that can make it easier with the FHA modernization bill," Bush said in the interview.

"I mean, there's specific things we can do but the housing market has to work its way out of course. and I'm looking at other alternatives you know that I may or may not ask the Congress to approve. I haven't made up my mind yet," he said.

Econorama

0830 November Trade Balance, expected ($59.75 billion)
0830 Import Price Index, expected 0.25 percent
0830 Export Prices,
1400 December Treasury Budget, previous ($98.2 billion)

(all eastern times)

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

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

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.