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Market Insider: Wednesday Look Ahead

There are a few rays of optimism shining on Wall Street, but traders are unwilling to say it's clear skies ahead for stocks.

There's a definite change in attitude in the past few days as the government appears to have a multifaceted approach to tackle the banking crisis and is seemingly making headway in the Administration's campaign to encourage confidence.

On Wednesday, investors will be on the watch for housing data, durable goods orders and the fallout from President Obama's Tuesday night press conference.

Tuesday was a day of low-key selling after Monday's monster rally, The Dow fell 115 or 1.5 percent to 7660. The S&P 500 slipped 16 to 806.

UBS director of floor operations Art Cashin said the rally, which has been going on for more than two weeks now, may be getting tired, but Tuesday's sell off was not bad. "We are seeing more and more stocks getting ahead of their 50-day moving averages. I think we might have a little bit more room to go, but they're going to have to fight to make it be much more," said Cashin.

"It's mostly all about Washington," Cashin said of Wednesday's trading. On Tuesday, Both Geithner and Fed Chairman Ben Bernanke testified before Congress on AIG. On Wednesday, Geithner speaks in New York at the Council of Foreign Relations and will take questions after the 9:15 a.m. speech.

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President Obama's press conference is the latest in series of high profile interviews during the past 10 days in which the president, Bernanke and Geithner have worked to inspire confidence in economic rescue plans. The appearances have coincided with a series of announcements from the Fed and Treasury, providing details of bailout programs which have been well received by the markets.

In prepared remarks, Obama said he expects the economy to recover and that a comprehensive strategy has been designed to attack the crisis, create jobs, help homeowners and re-start lending. "And we're beginning to see signs of progress," according to a copy of his comments.

FDIC Chairman Sheila Bair, in an interview with CNBC's Larry Kudlow Tuesday, made a similar comment. "I'm cautiously optimistic. I am seeing glimmers of hope," said Bair.

"I think we're going to look back at these few days at the end of the first quarter, and in hindsight say, 'this is when officials turned the corner,'" said Marc Chandler, head of currency strategy at Brown Brothers Harriman. He pointed to the series of announcements since the FOMC meeting when the Fed said it would buy Treasurys and up to Treasury Secretary Timothy Geithner's release of details on the plan to boost liquidity and create a market for the bad assets on bank's books.

"This is a positive step. Each one of these steps since last Wednesday is beyond what the market has expected," said Chandler.

He also pointed to a break in the frenzy against AIG and financial firms in general, as Congress slowed down its efforts to tax bonus pay. "The rage that built up over AIG allowed Geithner to announce this plan that's very favorable to banks," he said.

"I think there are two forces. You've got one group of people, like Barney Frank, Nancy Pelosi and (Rohm) Emanuael who see the political benefits of punishing these culprits. On the other hand, there are people like (Larry) Summers, Geithner and Bernanke, who as much as they'd like to punish these banks, realize the most important thing right now is not moral righteousness. It's solving the crisis," Chandler said.

"I think this week represents the victory or ascendancy of the people who want to solve the crisis rather than just punish," he said.

Cashin said stock traders will be watching for the same theme in Obama's comments. "We think the president is going to put the outrage genie back in the bottle so America can stop playing victims and villains," he said.

In another sign the president may be working to smooth the rift between Wall Street's chastened bankers and a Congress that has zealously pursued finding culprits and pruning pay, Obama scheduled a meeting with several bank chief executivesat the White House Friday. His guest list includes executives from J.P. Morgan, Citigroup, Morgan Stanley and Goldman Sachs. UK Prime Minister Gordon Brown met with 13 global banks Tuesday, in preparation for next week's G20 summit in London.


Factors to Watch

Durable goods for February are reported at 8:30 a.m. and new home sales are released at 10 a.m. New home sales will get a lot of attention after Monday's existing home sales came in better-than-expected and home price data Tuesday showed the first improvement in a year. Other events include speeches by Cleveland Fed President Sandra Pianalto at 12:20 p.m. and San Francisco Fed President Janet Yellen, who speaks at 12:30 a.m.

Cashin said he will be watching oil inventories Wednesday because of creeping inflation concerns. Oil rose slightly, or $0.18 per barrel Tuesday to $53.98, its highest closing level since Nov. 28. "There are some signs of inflation showing up in the grains too, so they'll be watching that," said Cashin.

The Senate Foreign Relations Committee holds a 2:30 p.m. hearing on foreign policy and the global economic crisis. George Soros will testify at that hearing.

Dollar

The dollar gained 1.5 percent against the euro Tuesday, its biggest percent gain since Feb. 4. It was also higher against the yen. Gold, meanwhile, fell $28.70 or 3 percent to $923.80 an ounce, erasing part of last week's $70 gain.

Chandler said he believes the dollar will continue in an uptrend despite recent losses. He said the fact that the U.S. is likely to come out of recession before other countries is supportive of the currency.

"The U.S. will be coming out earlier than other countries. (Recent dollar weakness) is a short-term set back, having more to do with dollar positioning and the calendar and than a fundamental shift in dollar sentiment," said Chandler.

Bonds

A mid-afternoon announcement Tuesday from the Fed spurred a buying spree in longer dated Treasurys. The Fed, in an anticipated announcement, said it would start buying Treasurys Wednesday, but it surprised the market with word it would buy 30-year securities.

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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