Stocks may fall anew on recession fears By Caroline Valetkevitch
Sun Mar 9, 11:07 AM ET
NEW YORK (Reuters) - U.S. stocks could face a further pounding this week as evidence mounts that the economy has entered a recession and problems in the financial sector accelerate.
The economic agenda is relatively light until Friday, when the Consumer Price Index will command attention, especially with oil's jump last week to a record more than $106 a barrel and the surge in other commodity prices.
But anxiety about inflation will take a back seat to the recession fears rippling from Wall Street to Main Street after Friday's government report showed employers cut payrolls for a second straight month.
At the same time, the financial sector has been pummeled by news showing further signs of troubles related to the subprime mortgage market.
For one, concern about the survival of Thornburg Mortgage Inc (TMA.N) increased on Friday after the mortgage lender said it has $610 million of margin calls outstanding as of March 6, an amount exceeding its available liquidity.
The negative news trend is showing few signs of letting up, and could mean more losses for stocks.
"The sentiment right now is extremely bad," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
"On the economy side, today's numbers on the labor market probably confirm the U.S. is in a recession," Praveen said on Friday, though he added that much uncertainty still exists on the subject.
"On the credit side, we're seeing further stress on mortgage tightening and fallout from that," he added.
The S&P 500 (.SPX) is now off about 17 percent from its record closing high set back in October, a drop that puts the benchmark index close to crossing the threshold that market technicians consider to be the onset of a bear market.
On Friday, the Dow Jones industrial average (.DJI) fell 146.70 points, or 1.22 percent, to end at 11,893.69. The Standard & Poor's 500 Index (.SPX) slid 10.97 points, or 0.84 percent, to 1,293.37. The Nasdaq Composite Index (.IXIC) dropped 8.01 points, or 0.36 percent, to 2,212.49.
For the week, the Dow lost 3 percent, the S&P 500 shed 2.8 percent and the Nasdaq declined 2.6 percent.
HOPES FOR A FED RESCUE
If there is to be any reprieve for the stock market, it could come from signs the Federal Reserve is contemplating an emergency interest-rate cut, analysts said.
The Federal Reserve is scheduled to meet on March 18.
But last week, stocks sank below levels seen on January 22, when the Fed instituted an emergency rate cut to ease credit market strains and revive the economy.
Just minutes before the release of Friday's jobs report, the Federal Reserve announced measures to address heightened liquidity pressures in term funding markets, a move the Fed's staff said was a reaction to recognition that market deterioration had accelerated recently.
"Stocks and bonds are both begging the Fed to cut at least 50 basis points, and perhaps as early as next week. Investor risk aversion is spreading and the Fed can see this in the price action of all asset classes," said Tom Sowanick, chief investment officer of Clearbrook Financial in Princeton, New Jersey.
EARNINGS AND OIL OVER $106
This week's earnings schedule is short, but some quarterly results are expected from retailers, including American Eagle Outfitters (AEO.N). For a full earnings diary, see
Many analysts have said earnings estimates are overly optimistic and need to come down, further adding to worries for stock investors, who continue to see stocks as a bargain.
As the result of an eroding earnings outlook, stocks are slightly more pricey now than they were at their previous lows on January 22, with a 12-month forward price-to-earnings ratio at 13.03 now versus 12.93 then.
"It's likely that first-quarter earnings are going to be troubling for a large number of companies," said Sasha Kostadinov, portfolio manager and research analyst at Shaker Investments in Cleveland, Ohio. "The market has some valuation support here, but the near-term fundamentals are a bit sketchy."
Another source of concern for investors is oil, which has repeatedly hit record highs.
Yet another worry is the dollar, which is testing record lows against the euro and multiyear lows against the yen.
On Friday, U.S. oil for April delivery fell 32 cents to settle at $105.15 a barrel, but only after climbing to $106.54 -- the highest level since the New York Mercantile Exchange launched crude oil futures in 1983.
While higher oil prices have helped stocks by lifting the energy sector, they remain an overall negative because they put an extra burden on consumers and businesses.
CPI AND CONSUMER SENTIMENT
On the economic agenda, the international trade deficit for January is due on Tuesday, followed by weekly jobless claims and February retail sales data, as well as February import and export prices, all due on Thursday.
Generally weak February sales from major department store chains, including last week's report from J.C. Penney Co Inc (JCP.N), added to concerns that consumers have cut spending.
The Consumer Price Index for February, expected on Friday, is forecast up 0.3 percent for the overall figure and up 0.2 percent for core CPI, excluding volatile food and energy prices, according to economists polled by Reuters. For a full economic diary, see
"CPI is going to be an important number," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
The impact of rising gasoline and food prices on consumers' inclinations to spend money also will be assessed on Friday, with the preliminary reading for March of the Reuters/University of Michigan Surveys of Consumer Sentiment.
In Mendelsohn's opinion, the lighter-than-usual economic agenda could keep the stock market stuck at current levels.
"We're at very critical levels here. This is an area where if we're going to mount a rally, we've got to do it. But I'm not sure we're going to do it."
(Additional reporting by Jennifer Ablan and Ellis Mnyandu)
(
News 
Market Data 
Discover 
AI
