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Choppy markets look for surety
On light week for data, attention could focus on next administration's strategy
By Laura Mandaro, MarketWatch
Last Update: 12:01 AM ET Nov 8, 2008
SAN FRANCISCO (MarketWatch) -- The economy and the next U.S. president's plans to fix it will likely dominate markets in the coming week.
After a volatile five sessions highlighted by the U.S. presidential election, a dismal October jobs report and a cash crunch at General Motors Corp. GM, investors can look forward to a lighter week, at least as far as scheduled news items.
The sparse calendar will allow traders to focus on new information about the depth of the U.S. recession.
"The market's trying to digest how bad it can get," said Michael Gibbs, managing director in equity strategy at Morgan Keegan & Co.
Glum headlines from Detroit may further sour the outlook. On Friday, GM announced a $2.5 billion loss for the third quarter and said may have to halt assembly lines to deal with a cash shortfall. See related story.
Also of special attention: president-elect Barack Obama's initial moves to counter what he called "the greatest economic challenge of our lifetime."
On Friday, three days after beating Republican contender Sen. John McCain in their race for the White House, Obama briefly addressed his priorities after meeting with his top economic advisers. See related story.
With his inauguration three months away, the Illinois senator's efforts are largely limited to supporting fellow federal lawmakers as they discuss a second stimulus package.
He can name the appointees that will eventually make the big decisions, however. Of particularly interest is his choice to replace Treasury Secretary Henry Paulson.
"The market is wrestling with so much uncertainty now, anyone with a solid financial background, would be a positive," Gibb said.
Markets in the coming week will also get a dash of earnings from the retail sector, which has already said sales floundered even more than analysts anticipated last month. See story on same-store sales.
A handful of retailers will report earnings, including Wal-Mart Stores Inc. WMT, Starbucks Corp. SBUX, Nordstrom Inc. JWN and Penney Co. Inc. JCP.
With the exception of Wal-Mart Thursday, analysts are anticipating all will report a drop in operating profits. That's in keeping with a 14% decline in third-quarter earnings S&P 500 .SPX companies are on track to report, says Thomson Reuters.
American International Group, Inc. AIG and Microsoft Corp. MSFT are also scheduled to report earnings, on Monday and Tuesday, respectively.
Tuesday holiday
Economic releases are few next week, in part because the federal government will close for the Veteran's Day holiday Tuesday.
Bond markets and banks are also mostly closed that day. Stock markets, energy and metals futures, and currencies will all trade normally.
The biggest dose of economic data comes Friday, when the University of Michigan releases its consumer sentiment index for November and the U.S. government will report retail sales for October.
Economists are expecting another weak reading in consumer outlook, fostered by the 1.18 million jobs lost so far this year and still-tight lending conditions. See Economic Calendar.
"With the bleak economic outlook and deteriorating labor market, it will stay at depressed levels into the near future," commented analysts at BNP Paribas.
Another week of record swings
Even without big scheduled events, the week ahead will likely produce more of the stomach-churning moves that have characterized trading in recent weeks.
Last week, the Dow Jones Industrial Average $INDU recorded its biggest two-day drop in the blue-chip average's history after rallying more than 300 points on Election Day.
By Friday, the Dow and the S&P 500 rebounded, shrugging off the big increase in U.S. job losses and the GM warning. The Dow, the S&P 500 and the Nasdaq Composite all lost about 4% last week. Read Friday's Market Snapshot.
This whip-saw trading pattern may stem from big investors looking to raise cash by selling stocks, commodities, futures and anything else that's easily unloaded. A rally encourages these investors to sell; when stocks are beaten down enough, other investors step in.
"The hedge funds and highly leveraged funds are unwinding positions. Every rally you get tends to encourage more liquidation," said Bill O'Grady, chief market strategist at $500 million Confluence Investment Management LLC in St. Louis, Mo.
But there's more to the market than hedge funds, he notes.
"Let's face it, if you're a value manager, you're a kid in a candy store. You have no trouble finding stocks that are at historically cheap values," he said.
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