Market Insider/Tuesday Look Ahead

Guarded optimism poured into the stocks of two major retailers Monday, lifting them ahead of earnings reports that could impact Tuesday's trading day. Other stories to watch Tuesday include the big Merrill Lynch financial services conference, energy options expirations, pending home sales data and the NFIB small business survey. Currency and commodities are markets to watch.

Shares of Dow components Wal-Mart and Home Depot both rose ahead of Tuesday morning's earnings releases, in an otherwise choppy market. We will be watching these earnings and others that could shed some insight into the thinking of consumers as retailers head into the holiday shopping season.

Punching Bags

The worst performers in Monday's market were energy stocks but tech stocks were also battered in another round of disproportionately painful selling. Nasdaq lost another 43.81 points, or 1.7% on top of last week's 6.49% decline. The favorites were the hardest hit. Apple , for instance, lost 7%, and Research in Motion lost 9%. Google was down nearly 5% and Amazon gave up 2.4%.

Bargain hunting lifted stocks of some financial, health care and retail companies. The Dow lost 55 points and the S&P was off 14.52 points.

Trading Monday was somewhat subdued compared to recent volatility, but news (and rumors) surrounded the financials, which found some strength despite a number of big losers. Check out the drubbing E-trade received after the company indicated it could take another writedown. The stock lost more than half its value Monday after a Citigroup analyst said it was at risk of bankruptcy. Other analysts were not as dire in their predictions and the company said it could handle the writedown.

Merrill Lynch on Tuesday hosts its annual financial services industry conference. Speakers include Goldman Sachs CEO Lloyd Blankfein.

Flip Flop

Monday's markets were interesting in that the dollar down/commodities higher trade was reversed. The dollar rose 0.9% against the euro and was higher against most currencies but not the yen. The dollar slipped 0.9% against the yen as investors unwound the carry trade, which relied on cheap yen to invest in other higher yielding assets. The bond market and some futures contracts were closed Monday for the Veterans Day holiday.

Oil was down $1.70 per barrel or 1.8% Monday to 494.62 per barrel on reports Saudi Arabia may want to increase production but Saudi's oil minister told the Financial Times there are no plans to raise production at this weekend's OPEC meeting. Options expirations Tuesday could result in volatile trading. CNBC Europe will be covering the big world energy congress in Rome Tuesday.

Gold was a major loser in Monday's trading. In the regular session, gold fell $26.70 per troy ounce or 3.2% to $805.80, but it fell all the way to $792.80 in after hours trading.

Goldman Sachs International Vice Chairman Robert Hormats was in CNBC's world headquarters Monday for his appearance on "Squawk Box." I asked him about the declining dollar (contrary to Monday's move). In the last several days, even Europe Central Bank president Jean-Claude Trichet called the sharp currency moves "brutal" and said such moves were unwelcome.

I asked Hormats why suddenly there is so much domestic angst about the dollar's fall. "Trade balance is important but the weaker capital inflow has trumped that," said Hormats. Data shows that U.S. exports are rising but investment in the U.S. by foreigners is dipping.

He expects we will now hear a lot more commentary supporting the dollar including from Treasury Secretary Hank Paulson.

What's Going On?

Traders are talking about slowing growth as a new catalyst for market fear. Merrill Lynch's Richard Bernstein added to that view with his commentary Monday.

He said in a note that the consumer "seems destined for a recession -- the confidence surveys are suggesting as much." He, like some others, says there are some warning signs a recession may already have started, or at least is near.

He points out that in the 30-year history of the University of Michigan consumer sentiment index there have been only two other times when consumer confidence fell so far so fast at this time of year -- October 2001 and October 1990. In both periods, the economy was officially in a recession. In the four months to this November, the index fell 15.4 points to 75.0.

Bernstein had 20 reasons why a recession could already have started. Here are several:

  • Real average weekly earnings peaked in January
  • Motor vehicle sales peaked in January
  • Consumer expectations peaked in January (University of Michigan)
  • Truck tonnage peaked in January
  • Bond yields peaked in July and S&P eps peaked in June

Motoring To Motor City

CNBC's Erin Burnett is literally taking her show on the road Tuesday. Burnett will broadcast live from Detroit in team coverage with Brian Williams and NBC Nightly News from a Chrysler assembly plant. A special edition of Burnett's "Street Signs" will investigate the auto industry and what that industry means to Michigan and the nation. Michigan is also center stage for the debates about whether the U.S. is heading toward a recession and who will win the White House in 2008.

Questions? Comments?