Credit stories are back on the front burner. In fact, they are boiling over and are likely to keep spilling into the stock market in the week ahead.
There's also a fairly heavy economic calendar, including the Federal Reserve's latest meeting minutes, consumer inflation and a series of housing data.
There are some important earnings, including Wal-Mart Stores and Hewlett-Packard.
If the final details are sorted out, there could also be a major airline merger between Northwest and Delta. CNBC's Phil LeBeau reports the deal is close, and the new airline would be called Delta.
The market's focus will also stay centered on the saga of the bond insurers and the health of the credit markets. This past week, there were serious problems in the auction rate securities market, where buyers were scarce. Some big banks stayed out of that market, which is a short-term paper market predominantly for municipal bond and student loan issues. Deals that were done went at sharply higher rates.
U.S. markets are closed Monday, but futures traders will be active and watching overseas markets.
Credit Pinch
Tobias Levkovich, Citigroup's chief U.S. equity strategist, says he's watching the credit situation very carefully for signs that it will take a toll on the broader economy and it is beginning to look like it is. "Wall Street can go through a series of crises that don't have to make their way to Main Street," he said.
But he says the trend is shifting. In the Fed's latest senior lending officers survey, the net conditions in tightening versus loosening were about 30 percent. At 40 to 50 percent, it would be at recession levels. "30 percent is getting there," he said.
"Now we're seeing credit conditions getting tight and three quarters later you see it showing up in the economy," he said. He said it's likely there will be a dip in industrial production; capital spending will decline and at best, employment stays flat.
On the corporate earnings front, "we are most worried about expectations in the second half being too strong," he said.
Levkovich says he expects the stock market to stay rocky as it adjusts to declining earnings expectations, and he says there could be another dip before improvement just after the elections. He said it doesn't really matter which candidate wins the White House but typically the market behaves better when the President-elect is a Republican.
For the year, Citi expects stocks to be up about 5 percent and he has an S&P 500 target of 1550. As far as stocks to buy, he says look for the ones where there are low expectations and awful sentiment. "We're telling people to buy consumer discretionary and financials. People are pricing awful conditions into those stocks," he said.
Market Mayhem
Stocks closed out the week with gains. The Dow scored 1.4 percent; the broader S&P 500, also up 1.4 percent, and the Nasdaq up 0.7 percent.
Crude was on a roll in the past week, gaining 4.1 percent to $95.50 per barrel, its biggest weekly gain since November. Gasoline was up 5.8 percent to $2.4938. Natural gas increased 4.3 percent to $8.66 per million btu.
Gold slipped 1.7 percent to $902.80.
The dollar lost 1.1 percent against the euro for the week and gained 0.4 percent against the yen.
The 10-year fell 1 1/32 on the week, raising its yield to 3.780 percent. The yield on the two-year was at 1.908 percent.
Econorama
Inflation data, Fed minutes and some housing data top the list of scheduled economic news in the week ahead.
On Wednesday, consumer prices are released at 8:30 a.m. and the Fed's minutes from its last FOMC meeting are issued at 2 p.m. That report will include new forecasts from the Fed. Fed Chairman Ben Bernanke said in his Congressional testimony Thursday that the Fed has trimmed its growth outlook for this year.
The CPI inflation data will be a big item to watch because we know how closely the Fed is monitoring inflation. There was plenty of negative news on the inflation front in import data released Friday. U.S. import prices rose 1.7 percent in January, boosted by higher energy costs. It was the largest increase since January, 1989.
Housing starts and building permits are reported at 8:30am Wednesday, and the National Association of Home Builders Survey is released at 1 pm Tuesday.
On Thursday, weekly jobless claims are reported at 8:30 as usual. Also that day, the Philadelphia Fed survey for February is released at 10 a.m. That number could be significant, particularly after the market's reaction Friday to a negative Empire state manufacturing report. Leading indicators are also reported Thursday at 10 a.m.
The coming week is a quiet one for Fed speak. St. Louis Fed President William Poole speaks at Truman State University in Kirksville, Mo at 1:30 p.m. He will take questions from the audience.
Earnings Central
As the earnings period winds down, there are still some big names reporting in the coming week. The retailers start to roll out in force, with Wal-Mart Tuesday; TJX on Wednesday and J.C. Penney Thursday. Whole Foods is also reporting Tuesday.
Hewlett-Packard reports after the bell Tuesday.
There are a few names in the energy sector, including Integrys Tuesday and Transocean Wednesday. CMS Energy, Chesapeake Energy and Williams Cos. report Thursday. PG&E reports Friday.
Newmont Mining and Barrick Gold report Thursday.
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