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Market Insider: Keep Bailing

Investors will have an eye on Washington Tuesday as bailouts past and future are discussed on Capital Hill.

Traders expect another volatile and, probably cranky day for stocks. On Monday, the market lost another 2.5 percent in a rocky day of trading. The financials were the biggest losers, down nearly 6 percent after Citigroup said it would cut another 50,000 employees, and investors continue to worry that the group's problems are far from over.

Tuesday's important hearings start with the House Financial Services Committee on financial bailouts, featuring Fed Chairman Ben Bernanke, Treasury Secretary Hank Paulson and FDIC Chairwoman Sheila Bair. The hearing convenes right at the opening bell. Interesting to see will be what Rep. Barney Frank's committee has to say about the financial bailouts as much as the testimony of the three regulators.

Then later in the day, CEOs of the big three U.S. auto makers and the head of the UAW testify before the Senate Banking Committee at 3 p.m. The struggling industry will plead its case for a bailout.

The prospects of a General Motors bankruptcy has been spooking the markets, which fear the rippling loss of jobs and business failures that could result. "It's a gargantuan issue," said Art Hogan of Jefferies. "I would say Washington certainly has its back up against the wall as far as Detroit goes. It's not a function of "if." It is a function of "how" it gets some assistance."

Auto Blues



Senate Democrats propose legislation giving auto makers and suppliers $25 billion in loans from the $700 million financial bailout fund. The companies would have to produce a plan for long term financial viability and cut bonuses for executives making more than $250,000 a year. The Bush Administration has opposed using the bailout fund and says other sources should be used. It also criticizes the Senate proposal for its failure to demand an industry restructuring.

What strings are attached to a bailout will be the topic of much debate, and the timing will be key. GM has warned it is running low on cash and some fear it will be too late to rescue if Congress doesn't act in the next few days of the current lame duck session.

Econorama

Producer price inflation data, reported at 8:30 a.m. Tuesday, should show inflationary pressures relaxing in October. Economists expect a decline of 1.9 percent core, and an increase of 0.2 percent, excluding food and energy. Treasury international capital flow data is reported at 9 a.m. It is expected to show net purchases of $27.2 billion.

At 1 p.m., the National Association of Home Builders survey is reported.

Retailers Home Depot and Saks report earnings before the opening bell. Home Depot rival Lowe's posted better-than-expected third quarter results Monday though profits were down 24 percent.

Yahoo! shares may get some attention in early trading after CEO and co-founder Jerry Yang agreed to step down Monday evening. Yahoo! said it is conducting a search for his replacement, and that he will stay on until one is found. Yang was seen as a major obstacle in Microsoft's bid for the company earlier this year.

Markets Mayhem

The Dow lost 223 points or 2.6 percent to 8273 Monday, while the S&P 500 fell 22 points, or 2.6 percent to 850.75.

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Treasurys rose, lowering the yield on the 10-year to 3.686 percent. The dollar gained 0.32 percent against the euro and fell 0.69 percent against the yen Monday.

In energy markets, crude slumped another $2.09 per barrel, or 3.7 percent to $54.95, its lowest close since January, 2007, and a 62 percent decline from its July 3 record high. Hogan said oil's decline was once a positive for stocks. Now it's not. "We'd like to see it stabilize so we can stop seeing it as a poster child for global recession," he said.

Hogan said the stock market is beset by negativism. "The biggest negative catalyst there's been is the fairy tale of hedge fund redemptions," he said of market action in the last several sessions. "It's negative market sentiment in general. The good news is the increase in volatility we've seen, which is unprecedented by any stretch of the imagination, is caused by two things. There's a lack of liquidity and a great deal of uncertainty. The good news is that it is exactly what happens when you're approaching a bottom."

This "bottom" has been elusive. "It's a long approach. It's like coming in from an overseas flight," he said.

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 Senior Commodities Correspondent and 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.