Market Insider: Friday Look Ahead

A bailout of the auto industry could be what drives the markets Friday.

Traders will also be watching action in the credit markets, the volatile dollar, and the drip, drip of falling oil prices. For the stock market, there is a quadruple expiration of options and futures which could add to volatility in stocks.

There is no economic data on the calendar, but some after the bell earnings could influence Friday trading in tech.

Research in Motion released fiscal third quarter profits in line with expectations, but a batch of new blackberry products helped RIM turn out a much better-than-expected forecast. RIM earned $396.3 million, or $0.69 per share, on revenues of $2.78 billion. But RIM said fourth quarter revenues should be $3.3 billion to $3.5 billion, up sharply from a prior forecast of $2.97 billion. It also expects higher earnings of $0.83 to $0.91 per share.

Oracle also released profits in line with expectations but reported a drop in new software sales as the global economy slowed and the stronger dollar impacted overseas sales. Oracle's income fell 1 percent to $1.29 billion and revenues were up 6 percent.

Driving Stocks

CNBC's Phil Lebeau reported Thursday that by all indications the bailout plan could come from the Bush Administration as early as Friday. The situation for auto makers is becoming increasingly critical. Chrysler Wednesday said it would idle its 30 plants for a month, doubling the duration of its usual December shut down. Ford was also reported to be shutting down most of its North American assembly plants for an extra week.

The White House Thursday reaffirmed its intention to throw the industry a lifeline, but it spooked stock investors with talk of the possibility of an "orderly bankruptcy" for auto makers.

The stock market was weakened by those worries but was also dragged down by a decline in oil stocks. Energy shares fell 5.7 percent, as crude oil declined sharply. The Dow fell 219 points, or 2.5 percent to 8604.99, while the S&P 500 slumped 19 or 2.1 to 885. The Nasdaq was down 37 points, or 1.7 percent to 1552.

Oil fell to $36.22, a decline of $3.84 or 9.6 percent, the lowest level since June 2004. Oil fell on concern about the global economy and energy demand, but it was also pushed lower as traders sold contracts ahead of the expiration of the January contract at Thursday's close.

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General Electric, parent of CNBC, was also a weight on the stock market Thursday, after Standard and Poor's changed its outlook for the company to negative from stable. The ratings firm did not change the company's AAA rating. S&P warned that earnings and cash flow at GE Capital could decline enough in the next two years to warrant a downgrade. It also said GE's recent financial policy actions though have been consistent with the actions of a company with the highest credit quality. GE pointed out that S&P expects it to execute its 2009 operational and funding plan, and said if the company executes the plan successfully, S&P will reconsider its outlook.


Treasurys continued to attract a flurry of safe haven buying, driving yields to record lows. The 30-year's yield fell to 2.547 percent, while the yield on the 10-year fell to 2.078 percent, and the yield on the two-year slid to 0.685 percent.

But there was some encouragement in some areas like corporate bonds, where there were more active buyers than usual. Even so, there remains a high level of skepticism toward the Fed's plan, announced earlier this week. The Fed, as it lowered its target funds rate to a range of zero to 0.25 percent, also said it could buy a all kinds of securities, including Treasurys.

"It's a delicate, delicate situation right now," said Cronus Futures Management's Kevin Ferry of the credit markets. "Right now it's being propped up because of the massive amount of activity the central bank has in the markets."

Ferry said the markets are also impacted by the lack of players in the market ahead of the year end. Ferry said next week the government has two auctions where it is expected to issue record levels of two- and five-year Treasurys. That could be impacted by the lack of buyers in a holiday week. He expects the Treasury to issue $38 billion in two years and $28 billion in five years Tuesday and Wednesday.

The dollar changed course in a volatile trading day to gain 1 percent against the euro and 2.1 percent against the yen.

Bright Spot

Who doesn't thrill at the chase for a really good bargain? Shopping this holiday season is certainly the equivalent of a bargain shopper's world series. But if you are having a hard time whipping out your wallet, or it depresses you too much to see some upscale retailers resembling summer sidewalk sales at Marshall's, then there's another bargain you'll possibly find more interesting.

That would be the new mortgage. Thirty years are dipping below 5 percent, and they've only just begun. The reason for this is the government's historic presence in the cash mortgage market. These lower rates have ignited a great bit of excitement about the potential for refinancings. Maybe, they'll also spark a few real estate transactions, even in this traditionally slow time of year.

Scam of the Century

The new SEC, under Obama appointee Mary Schapiro's reign, will have its hands full prosecuting the latest generation of crooks. Bernard Madoff, of course, is now at the top of the heap. Funny though that a former Lehman Brothers employee and four others were charged Thursday with trading on inside information for just $5 million in illegal profits, while Bernie was able to allegedly rip off $50 billion in a giant ponzi scheme, seemingly all by himself.

Questions? Comments?