Bad news on the economy could trip up markets Wednesday, but traders say they already expect the worst and it may not matter.
Retail sales are reported at 8:30 a.m. Wednesday and are expected to show a decline of 1.2 percent for December. The number could be even weaker based on the dismal sales reported by chain stores last week. Import prices are also reported at 8:30 a.m., and business inventories are at 10 a.m. The Fed's beige book on the economy is released at 2 p.m.
"The retail sales numbers are going to be a disaster. I don't think that's news to anybody," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "So it's a question of how much worse they are than expectations, and if there are any serious downward revisions. With the beige book, you would expect it to corroborate the collapse in activity and also be very negative."
"The question is - has the market priced it in? We'll see," said LaVorgna.
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Economists have been expecting all data from December and the fourth quarter to be very weak. LaVorgna said he expects GDP, reported at the end of the month, to contract by 6.5 percent in the fourth quarter.
"But in light of the trade number it's conceivable that the economy won't shrink that much, but regardless, it's going to be horrible," he said. Tuesday's report of a much smaller than expected trade deficit was a surprise. The trade balance with the rest of the world declined to $40.4 billion on a record drop in oil prices and weaker demand for imported goods. Economists had expected more than $50 billion.
Stocks were mixed Tuesday with the Dow falling 25 points to 8448, and the S&P up 1.53 points at 871.79. The Nasdaq was up 7.67 points, or 0.5 percent to 1546.46. Financial stocks sold off early in the day, but the sector stabilized and turned higher, to finish up 1.35 percent. The worst performers were the industrial sector and utilities, down two percent.
Buying in bonds pushed the yield on the 10-year lower to 2.301 percent. The dollar rose 1.4 percent against the euro at $1.3190 per euro. It was up very slightly against the yen.
After five days of declines, oil rose $0.19 per barrel to $37.78. Comments from the Saudis made about production cuts and a blast of cold weather in the U.S. helped sentiment.
Oil and gasoline inventory data is scheduled for release at 10:30 a.m. Wednesday. Platts survey of analysts shows expectations for a three million barrel build in U.S. crude stocks. Gasoline stocks are expected to be up 1.8 million barrels.
Trouble or a Bump in the Road?
Stocks Tuesday shrugged off reports that Senate finance committee members were speaking to President-elect Barack Obama's choice for Treasury Secretary about tax issues and the work authorization of a former housekeeper. Incoming press secretary Robert Gibbs said Tim Geithner made honest mistakes and that he is the right person to head Treasury. Geithner's immigrant housekeeper was temporarily without legal status but later applied for a green card and was never charged. He also did not pay social security or Medicare payments when he worked as a consultant for IMF. But he paid the taxes and interest when alerted by the Internal Revenue Service.
"All in all, everything went fine. I don't think there's a problem with any of these confirmation hearings," said Tim Smalls of Execution after the Senate members met.
Smalls said the market had staged a rally based on the Obama economic team and any problem with Geithner, who headed the New York Fed during the financial crisis, would be a big problem for markets. "Let's put it this way, we'll watch with cautious optimism," he said. Geithner's confirmation hearing is Thursday.
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Stocks to Watch
Citigroup and Morgan Stanley announced they were merging their brokerage operations into a new joint venture. The move will give Citi $2.7 billion from Morgan and take Citi a step closer to a major overhaul of its business model.
Yahoo named Autodesk's Carol Bartz as its new CEO. Yahoo president Sue Decker will leave the firm after a transition.
Xilinx reports earnings after the bell Wednesday.
Scam of the Century
Ponzi scamster Bernie Madoff again appears in court Wednesday as prosecutors once more try to get him thrown in jail.