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Market Insider: The Week Ahead

Posted By: Patti Domm | Executive Editor
CNBC.com
| 23 Jan 2009 | 07:20 PM ET

More bad earnings news and dismal economic reports could steamroll stocks in the week ahead, but the market may gain some traction if it appears the Obama Administration is making progress with programs to help the economy.

The first look at fourth quarter GDP, which should show a severe contraction; new data on the real estate market, and a two-day Fed meeting are on the agenda in the week ahead, along with earnings from about a quarter of the S&P 500.

The House of Representatives is expected to take up the $825 billion fiscal stimulus program mid week, but the markets enter the week fixated on the idea that the Obama Administration could unveil a new financial rescue plan, using remaining funds from the Troubled Asset Relief Program (TARP).

The first half of the TARP has been used to inject capital into financial institutions, but there is a growing consensus that the second half could be used to form a "bad" bank, or aggregator bank to hold banks' toxic assets. Monday's Senate vote on Timothy Geithner's nomination as Treasury Secretary is also important, as it's the Treasury Secretary position that has orchestrated the financial markets rescue.

"As the crisis keeps unfolding, the bigger problem is businesses, that are viable, that need the money, aren't going to see any of it coming out of these banks." said Rick Schottenfeld, chairman of Schottenfeld Group.

"I do believe the Administration will bring with it another plan. We're at this inflection point where if something doesn't get done soon, the economy is going to worsen and we're going to see lows," Schottenfeld said on CNBC's "Closing Bell" Friday.

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Stocks in the past week suffered from a rash of bad earnings news but more so from a major sell off and lack of confidence in financial stocks. The Standard and Poor's financial sector lost 7 percent in a week of wild trading.

"The days the financial sector gets obliterated are the days the market gets obliterated. The days when it catches its breath, the market comes back" said Bill Stone of PNC.

A new plan for "TARP is one of the most important things, so people can start making decisions," he said.
Market Mayhem

The major indices, however, managed to hold key support levels, above the November lows. The Dow lost 2.5 percent for the week to 8077, and the S&P 500 closed off 2.1 percent, at 831. The Nasdaq was off 3.4 percent to 1477.

Traders are watching to see if these important levels will hold, but some technicians believe the lows could be broken. That would be 7552 on the Dow and 752 on the S&P. John Roque, of Nataxis Bleichrolder is one of those. He points to the Paris CAC and Italian MIB 30, two indices that have now made new lows. He said the world is no longer decoupled, and "If they've made new lows, I should pay attention." Roque said his S&P target is 680.

The dollar, meanwhile, marched higher against the euro and sterling, which hit lows not seen since the 1980s. The dollar was 2.3 percent higher against the euro, at $1.2985, and down 1.9 percent against the yen, in the past week.

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Brian Dolan, chief currency strategist at Forex.com, said he sees a scenario where the dollar might reverse course in the coming week. He said a weekend meeting called by President Barack Obama on the economy could result in some news on the TARP. "The risk now is things improve sentiment-wise. You get a rebound in stocks and fall off in the dollar," said Dolan.

"Something is clearly coming down the pike," said RBS Greenwich chief economist Stephen Stanley of the possibility of an announcement on TARP. "It feels like the Treasury, or Administration is going to take the lead on that. It kind of feels like at this point we're waiting for the Administration to decide what to propose," he said.

Stanley said though that he thinks the fiscal stimulus program, expected to reach the House floor this week, is not likely to do much for economy, and it could be a case of too much, too late. "Paint me one of those skeptics. I just don't think it's going to have a huge impact on the economy, partly in the way it's going to be structured. Most of what's in the package is not particularly stimulative for the economy. They are using it as a way to get a lot of stuff in that they wanted to get done, but couldn't because of the budget process," he said.

Econorama

Stanley expects the fourth quarter to show a contraction of 4 percent, when GDP is reported Friday, though many economists see it shrinking by 5 percent or more. His first quarter forecast is negative 4.2 percent. "If the fourth quarter plays out the way we expect, and our guess is the first quarter is probably the last one that has one of these huge GDP drops, it plays back to my skepticism on stimulus. So my guess is the economy will be in much better shape in the fall or summer of the year," he said.

Another big event in the week ahead is the Fed's two-day meeting, starting Tuesday. "I think it's going to be the quietest Fed meeting in recent history. They're not going to do do anything on rates, and I don't think any major initiatives or new programs will be coming out with the FOMC announcement. They'd be coming out separately," he said.

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He expects the real estate data, starting Monday with existing home sales, to show continued weakness, particularly when Thursday's new home sales are reported..

The housing data also includes the S&P Case-Shiller home price index Tuesday. Readings on the consumer are also expected, with consumer confidence Tuesday and consumer sentiment Friday.

On Monday, leading indicators are released. Durable goods and weekly jobless claims are reported Thursday. The employment cost index and Chicago purchasing managers are reported Friday.

Earnings Central

Industrials, telecoms, drug companies and financials are among the many companies reporting in the week ahead. On Monday, Dow components Caterpillar, American Express and McDonald's are expected to report. Reporting Tuesday are Eaton, Halliburton, Kimberly Clark, Tyson Foods and Texas Instruments. Verizon, Bristol-Myers Squibb, Hershey, Valero, U.S. Steel, EMC, Norfolk Southern and Siemens. See more below chart.

Wednesday's reports include AT&T, Boeing, Pfizer, Wells Fargo, General Dynamics and Starbucks. 3M, Eli Lilly, Royal Dutch Shell, Colgate-Palmolive, Ericsson, International Paper, Amazon.com and Altria report Thursday.

Big oil reports Friday with releases from Exxon and Chevron. Procter and Gamble, Honeywell and Gannett also report that day.


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