Stocks are locked in a trading range that could be put to the test in the week ahead.
Traders say the market's reaction to the Obama Administration's foreclosure plan, expected Wednesday, could be pivotal. Markets will also face plenty of economic news, including inflation and housing data. Plus, there are minutes from the last Fed meeting and a parade of Fed speakers, but the focus is most intensely on whatever plan is unveiled on housing and whether any more details are made public on the Treasury's bank bailout plan.
Tuesday afternoon is the deadline for General Motors and Chrysler to submit viability plans to the Treasury, as part of the agreement that allowed them to borrow funds from the Troubled Asset Relief Program. The White House is expected to name its auto team at this time.
"We don't have specifics. The market is tired of the uncertainty. We need something concrete. That's what we expected to get at the beginning of this week," said Tim Smalls of Execution LLC of the bank bailout plan. "In light of the fact that didn't happen, there's only one way for the market to vote, and that's with a sell order until we get something concrete. Good plan, bad plan. It doesn't make a difference. We've got to see a plan."
Stocks in the past week reacted violently to Treasury Secretary Timothy Geithner's outline for a financial stability plan. The lack of details in his plan spooked the markets. The Dow shed 5.2 percent for the week to finish at 7850, while the S&P 500 lost 4.8 percent to 826 and the Nasdaq was off 3.6 percent to 1534. The stock market is closed Monday for the President's Day holiday.
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"Anything we hear, in particular, on direct aid to homeowners would, I think, be welcome news. As far as the Fed goes, I don't think we're going to see too many surprises there either in speeches or in minutes," said Scott Wren, senior equities strategist at Wachovia Securities. President Barack Obama is expected to disclose details of the housing plan in Arizona Wednesday.
"We've been looking for some sort of direct home ownership assistance as way to help stabilize the housing market..For us, and most people that's going to be a huge key to stabilizing the whole economy," said Wren.
Mark Zandi, chief economist at Moody's Economy.com, said the foreclosure plan will probably not be enough to turn the housing market and more aid will be needed. He said it should establish a national standard for loan modification and possibly a plan to turn floundering homeowners into renters in their homes. "I suspect there's going to be some attempt to present modifications by servicers and mortgage owners that would involve principal writedowns, but I don't think that's going to be a central part of the plan," he said.
"I don't think we'll get a plan as big and bold as we need," said Zandi. "What's important is not only modifying the loans with writedowns, it's getting participation very quickly because foreclosures are surging."
Also in the coming week, President Obama is expected to sign the $789 billion stimulus package into law Monday. The Senate was voting on the bill Friday evening. There are a handful of earnings, including Dow components Wal-mart and Hewlett-Packard.
"The market is trapped in the 950 to 740 range on the S and P. I'm not sure what it's going to take to break us out either way, but I think it's going to be some government policy-related news that's going to get us moving," said Wren.
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"There's a better than 50/50 chance we're going to test the downside," said Wren. He said his firm is currently overweighting industrials. "We've been underweight materials, but we're watching that one very closely. These commodities prices have held up a little bit lately....That's something we're looking to upgrade." he said. The firm is also overweight telecom. "On the more defensive side, food retail, drug retail, and we're even weight consumer staples."
Wren said individual investors have been reluctant to participate. "Right now, I think retail investors are pretty scared. They're on the sidelines mostly. Volumes continue to be very low. There's a lot of people that aren't excited about getting back in the market, and they're more than happy to forego the first 10 or 15 percent move up," Wren said.
Wren said he expects the S&P 500 to move back to the 1,000 level by year end. "We're not really sticking our neck out with that call. Anticipation of stability and some better earnings comparisons I think could go a long way." He said Wachovia analysts expect the economy to stabilize in the third quarter and see a return to positive earnings comparisons in the fourth quarter.
The fourth quarter of 2008 has made earnings (or non earnings) history. Standard and Poor's Friday said with 85 percent of the S&P 500 issues reporting, the quarter is on track to be the first negative quarter ever for the 500. It is the sixth quarter of negative growth, a run not seen since 1952.
In the short term, traders are watching the S&P carefully. "All in all the market acts ok," said Smalls. "We're still above 824 to 826. As long as we don't go below that, we haven't violated the trend line. The problem I have is this market is waiting for good news. ..The longer we go without some catalyst to the market, the more you're going to give investors a reason to do nothing. In the absence of a catalyst, the market will drift lower."
Oil swooned in the past week. Crude fell 6.6 percent to the low $30s before turning around to finish Friday at $37.51 per barrel. "We're still dealing with the overwhelming supply situation. We're still grappling with what the impact of the stimulus will be.. The unprecedented spare capacity in OPEC, at this point, could argue for another trip lower here before it's all said and done," said M.F. Global senior vice president John Kilduff.
Gold, however, was another story. As investors shunned stocks, they dove into gold, which gained 3 percent to $941.50 per troy ounce in the past week.
The dollar edged higher against the euro in the past week to a level of $1.2888 and was nearly flat against the yen. Buying in Treasurys pushed the yield on the 10-year lower, to a level of 2.9 percent, and the yield on the two-year fell to 0.964 percent.
Currency traders were watching the G-7. meeting in Rome over the weekend. The G-7 ministers were expected to pledge to avoid inflicting damage on other economies in their efforts to battle the recession and global financial crisis. In a preview of their statement, the G-7 also praised China's efforts to move to a more flexible exchange rate.
Lots of Fed speakers are about in the coming week with the highlight a speech by Fed Chairman Ben Bernanke where he takes questions from the audience Wednesday at 1230 p.m.
On the economic calendar, the Empire State survey is issued Tuesday, as is the Treasury's data on international capital flows. The National Association of Home Builders releases its February survey Tuesday afternoon. Housing starts and building permits are reported Wednesday, as are import and export prices. Industrial production is also released that day, but the highlight will be the FOMC minutes and the Fed's new economic projections, released in the afternoon.
On Thursday, weekly jobless claims are reported as is the producer price index, the Philadelphia Fed survey and leading indicators. The consumer price index is report Friday.
St. Louis Fed President James Bullard speaks before the National Association of Business Economists at 1 p.m. Tuesday. Cleveland Fed President Sandra Pianalto speaks at the Commercial Developers Power breakfast Wednesday, and Chicago Fed President Charles Evans speaks about the economic outlook at a luncheon later that day. Atlanta Fed President Dennis Lockhart speaks on the economic outlook in Birmingham Thursday.
Former Fed Chairman Alan Greenspan speaks at the Economic Club in New York Tuesday evening.
Wal-mart and Hewlett Packard are the big reports in the week ahead as the earnings season winds down. Wal-mart reports Tuesday, as does Daimler, Teva, Transocean and Chesapeake Energy. Comcast, Deere, and Constellation Energy report before the bell Wednesday. (For more earnings, see below quote box.)
Hewlett-Packard reports Wednesday afternoon, as does Whole Foods and CBS. Apache, AXA, CVS Caremark, Newmont Mining, Williams Cos and Sprint report before the market open Thursday. Companhia Vale do Rio Doce and Intuit report after the closing bell Thursday. On Friday, Barrick Gold, JCPenney, and Lowe's report.