Stocks got a lift from optimism that the government's bank bailout and stimulus plans will help mend the economy, but the question for investors in the coming week is whether the market is getting ahead of itself.
Details of the latest version of the much-anticipated bank bailout will be unveiled by Treasury Secretary Tim Geithner on Tuesday. That plan, which was orginally expected to be released on Monday, was postponed in order to allow time for the Senate to vote on the economic stimulus plan, the Treasury Department said Sunday.
Geithner's financial plan is expected to tackle the toxic assets on bank books as well as allow for more capital injections and tougher scrutiny of institutions.
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Congress in the coming week will also be working towards tying up the $800 billion stimulus package. The Senate reached a compromise on a bill late Friday. The fate of that package should play a big role in driving markets early in the week.
Stocks had their first up week in a month and their best week since early January. The Dow rose 3.5 percent to 8280, while the S&P 500 was up 5.2 percent at 868. The Nasdaq, driven by a rally in tech, jumped 7.8 percent to 1591, giving it a nearly 1 percent gain for the year-to-date.
"We're telling people this is a decent time to invest in the markets," said Tobias Levkovich, chief U.S. equities strategist at Citigroup. He said earnings estimates have gotten more realistic and volatility has come down, and he is feeling relatively constructive about the stock market despite the challenging economy.
"Challenged economic times doesn't mean you can't make money in stocks. We think it's a little late to play defense. You have to take a little bit more of an offensive edge to your portfolio," he said. Levkovich said some sectors he likes to dip into now are retailing, semiconductors and insurance.
Traders had been expecting a retest of the market's November lows, but were surprised instead by a willingness by investors to put money back to work in some of the less defensive, down trodden sectors in the past week. Technology finished the week up 9.7 percent, and the commodities-driven materials sector, rose 7.4 percent. Financials were up nearly 6 percent. Defensive consumer staples were the worst performers, up just 1.7 percent.
In the week ahead, in addition to the Treasury announcement, markets will be focused on testimony by Geithner and Fed Chairman Ben Bernanke before separate Congressional committees Tuesday. On Wednesday, eight bank CEOs appear before the House Finance Committee to discuss accountability for the TARP, Troubled Asset Relief Program. There is also a massive $67 billion Treasury refunding in the coming week, and some key economic data, including retail sales for January.
For the Investor:
By the end of the week, the G-7 meets in Rome where finance ministers will discuss the global economic crisis.
"When the G-7 meets, they're going to talk about currencies, but they always do," said Marc Chandler, chief currency strategist at Brown Brothers Harriman. "It seems quite clear they're not going to intervene...It will be Geithner's first time there as Treasury Secretary so it's more of a 'get to know you' than a look over of international proposals."
The dollar fell 0.9 percent against the euro in the past week, snapping a five-week winning streak. The dollar rose 2.4 percent against the yen. The 10-year Treasury fell on the week to 106-16/32, raising its yield to 2.980 percent. The two-year yield rose to 0.987 percent.
The Treasury's auctions for three-year, 10-year and 30-year notes fall Tuesday through Thursday. "The question is how are the auctions going to go?" said Deutsche Bank chief economist Joseph Lavorgna. "I'm not saying we're going to have a failed auction but supply is becoming an issue for the market. You're getting all this supply coming. We're going to get like $2 trillion supply between now and the end of the year...I think the market is going to test the Fed."
Big Economic Data, Earnings on Tap
The big economic news comes from the Treasury this week, but there are also some key numbers to watch. Retail sales for January, reported Thursday, is one of the most important. The NFIB survey on small business activity is released on Tuesday morning. Wholesale trade is also released that day. On Wednesday, look for news on international trade and the Federal budget. Weekly jobless claims are reported Thursday, as usual. Retail sales for January are also issued that day, as are business inventories. Consumer sentiment is reported Friday.
"I do think the economic data are going to take a back seat just now to company earnings and to what's happening with the banks. People know things are bad and it's going to take a lot to shock them," LaVorgna said.
"It's safe to say the data does not show the rate of economic deceleration is accelerating. Maybe we're even starting to level off," he said.
The pace of earnings news is slowing a bit in the next week but two big cola companies duke it out with reports Thursday, from Coca-Cola , and Friday, from Pepsi .
Barclay's is a key report to watch ahead of the bell Monday. Also reporting Monday are Beazer Homes, Hasbro, Loews, Nissan, NYSE Euronext, and Whirlpool. After the bell Monday, Lincoln National reports. See below the chart for more companies reporting next week.
On Tuesday, DirecTV, Molson, Qwest and Coventry Health Care report ahead of the open. Applied Materials, Computer Sciences, Nvidia and VF Corp report after the bell that day. Allegheny Energy, Arcelor Mittal, Genzyme, Ingersoll-Rand, Marsh McLennan, and Sanofi-Aventis report Wednesday. See more below the chart.
Thursday's reports include Aetna, BT Group, Marriott, Masco, Viacom, Cephalon, and Waste Management.
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