Week Ahead: More Volatility In Store?
CNBC Executive News Editor
The best thing about the week ahead in the markets is that the past week, with its mad, panicky volatility, is over.
That doesn't mean the volatility is though. There's lots and lots of news expected in the next few days that will affect trading, but the one headline that matters most comes at 2:15 p.m. Wednesday when the Fed releases its rate decision.
Traders, for the most part, are looking for a half point cut, after the 3/4 point surprise cut by the Fed last Tuesday.
The past week will be one investors remember for a long while. First, a panic attack gripped global markets Monday. Then there was that surprise, unprecedented rate cut by the Fed, followed by a 600-point intraday market swing Wedne sday. At midweek, investors we re jumping to cover short positions, particularly in financials, as talk took over that maybe the market hit at least a short-term bottom.
Then, it comes out that a single trader at a French bank was able to lose $7.2 billion before anyone noticed! By Thursday, a stimulus package proposed in Washington is lifting spirits. So, it's really no wonder that nervous investors took profits Friday and the week ended with a selloff.
But despite the week's scares and wild swings, the Dow closed higher - up 107.87 points or 0.9 percent - in its first positive week since December 21. The S&P was up 5.42 points, or 0.4 percent to 1330, also the first positive finish in four weeks. The Nasdaq though was off 0.6 percent for the week, taking it down 12.3 percent for the month so far.
There is a deluge of earnings news, expected in the week ahead and it will provide a good look at a cross section of Corporate America. On Monday, McDonald's, Verizon, Corning, and Tyson Foods report before the bell. American Express reports in the afternoon. Tuesday morning, we'll get results from Countrywide. Also reporting are Burlington Northern, Dow Chemical, Eli Lily and EMC. After the close, Yahoo and Allstate report.
On Wednesday, some of the big names include Boeing, Merck and Altria ahead of the bell. That afternoon, Amazon, Pulte Homes and Starbucks report.
Bristol-Myers, Colgate-Palmolive, Procter and Gamble, MBIA and Marathon Oil release results Thursday morning. Anheuser-Busch also reports that day. Google is the heavy weight after Thursday's closing bell. On Friday, Chevron and Exxon report in the morning, along with Gannett, Simon Properties and Ryder System.
Of the 160 S&P 500 companies reporting so far, 59 percent have surprised on the upside while 28 percent missed Wall Street estimates. Reported earnings are down 46.8 percent so far for the quarter. According to Thomson Financial, the forecast for fourth quarter results is a decline of 20.5 percent, but if you remove the financial sector, that number reverses into a gain of 11.4 percent.
The Fed's meeting is the big event of the coming week, but still there is loads of economic data that could get markets moving. The Fed's big day is Wednesday, but its meeting starts Tuesday.
Friday is a key day for data, with the important January employment report at 8:30 a.m. The ISM manufacturing index is released that day , as is construction spending and consumer sentiment, all at 10 a.m.
The week starts out with new home sales, Monday at 10 a.m. On Tuesday, durable goods orders are reported at 8:30 a.m. and consumer confidence is reported at 10 a.m.
On Wednesday, there are several important items, including fourth quarter GDP at 8:30 a.m. ADP's jobs report is also released at 8:15 a.m. and weekly oil inventory data is reported at 10:30 a.m.
On Thursday, personal income and the employment cost index are reported at 8:30 a.m. Weekly jobless claims are issued at 8:30, as usual, and Chicago purchasing managers data is released at 9:45 a.m.
Auto sales for January are also reported by car makers on Friday.
If all that isn't enough to get markets cooking, the political agenda from Washington and wherever else presidential candidates roam, should continue to circle around the economy and therefore, the markets.
Monday night is President Bush's final State of the Union Address, and he is likely to emphasize the need for Congress to move quickly on adopting the proposed fiscal stimulus package. As it stands now, most taxpayers will receive rebates of between $300 and $1200, depending on marital status, family size and income level.
The stimulus proposal would also allow Fannie Mae and Freddie Mac to increase the size of mortgage loans they buy, a help for the ailing housing market.
The Senate has yet to consider the plan. Mark Zandi, chief economist with Moody's Economy.com, thinks the package is a real positive and shows an unprecedented level of engagement in the economy by policy makers.
I spoke to Zandi in December and, at the time, he feared a recession was coming in part because the Fed was not engaged, and there was a lack of responsiveness from Washington.
Now, "They are fully engaged. When policy makers are working in a direction in a big way, that will win the day. It doesn't mean we won't have a recession, but it makes me much more confident if we do have a recession that it will be less severe," he said.
"I think it will add a percentage point and a half to GDP growth in the second half," Zandi said. He said of the approximately $150 billion in tax rebates, about $100 billion, "two-thirds or so will be spent in the second half of the year, if history is a guide."
As for the Fed, Zandi thinks they will cut another half a point, but that they should then signal they may hold the target rate at that level. "I think it would be a huge mistake if they don't think they need to do this and say our focus is still toward growth, to allay any fear they might not move again, and then to firmly plant in peoples' thinking that three percent is a low rate and it's consistent with what's going on," he said.
And There's More
As the week comes to a close, OPEC will meet Friday in Vienna. Oil finished out the past week at $90.71 per barrel, up 0.88 percent. Crude has been moving lower on concerns a weakening U.S. economy means a slackening in demand. But news of the stimulus package got it moving higher again.
Gold finished the week up 3.4 percent at $910.50, its ninth record close of the new year. Gold rose Friday after South African mines were shut down because of power issues.
The 10-year Treasury gained 15/32 and its yield slipped to 3.582 percent. The two year's yield was at 2.199 percent.
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