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Stocks turn to intervention talks, data
G20 meeting, talk of auto bailout and more economic reports on tap
By Nick Godt, MarketWatch
Last Update: 12:01 AM ET Nov 15, 2008
NEW YORK (MarketWatch) -- Investors will turn their attention next week to economic data and the possibility of further intervention by U.S. and foreign leaders as woes pile up for the American auto industry at home and many industries around the globe.
Wall Street saw more heavy losses over the past week as increasingly dire economic reports and corporate outlooks confirmed that the global economic slump is now hitting most industries.
"Investors channeled their nervous energy away from the credit markets and are now obsessing over the direction of the economy," said Jack Ablin, chief investment strategist at Harris Bank. "Unfortunately, most of their fears are being realized, as economic arrows point lower."
The Dow Jones Industrial Average $INDU fell 337 points to end at 8,497 on Friday, leaving it down 5% for the week.
The broad S&P 500 index $SPX fell 38 points to 873 Friday, ending the week 6.2% lower. Hopes about consumer spending faded after a steeper than expected 2.8% drop in retail sales in October, weak outlooks from Best Buy BBY and JC Penney JCP while Circuit City filed for bankruptcy.
Besides retail sales, there were little key U.S. economic data. But on Friday, the eurozone officially entered into its first recession since the single currency was launched nearly 10 years ago. See full story.
The Nasdaq Composite COMP fell 79 points to 1,516, after a stiff 7.9% drop over the past week. Technology issues were hit after dire outlooks from chipmaker Intel INTC, computer-maker Dell, cellphone maker Nokia NOK and Sun Microsystems JAVA.
"Corporate earnings are also weighing on equities," Ablin said.
Third-quarter earnings at S&P 500 companies are now expected to be down 18.4% from a year ago, compared with expectations for a drop of 13% just last week, according to Thomson Financial.
And expectations for the fourth quarter continue to be revised lower. As financial firms began reporting huge write downs late last year, comparisons with this quarter are easier, with and analysts on average forecasts earnings to have grown 20.6%. But that's still down from 24% just last week, and excluding financials, earnings are expected to fall 4.6% year on year.
New lows for the market
On Thursday, stocks rallied after a slide that led the Dow industrials below 8,000 to test their Oct. 10 lows, while the S&P 500 slumped to new five-year lows. The move led the market to snap back in a more than 900-point swing that gave the Dow its third highest point gain on record. See Thursday's Market Snapshot.
The move left some market analysts confident that stocks can, at least, hold within a trading range within the coming months.
"We are still taking a constructive view on the market that we are in a bottoming or stabilizing period," said Ken Tower, market strategist at Quantitative Analysis Service.
"We've seen the market come down extremely hard and the economic data has been coming in way worse than consensus estimates for several weeks," he said.
Next week is also likely to deliver more bad economic numbers.
On Monday will be industrial production and capacity utilization figures for October, and the release of a November manufacturing report from the New York region, the Empire State Index.
On Tuesday, the October producer price index will be released, to be followed by the consumer price index on Wednesday. Also on Wednesday, data on housing starts for October will be released, along with the minutes of the Federal Reserve's last meeting.
The central bank has already aggressively slashed its interest rate to 1% but markets have failed to react in the usual way, with many economists and analysts suggesting that the scope of the global crisis gives monetary policy little traction.
Global interventions?
Early in October, many central banks around the globe delivered emergency rate cuts together to try and halt panic selling in financial markets.
"Could we now see coordinated fiscal policy moves in the wake of this weekend's G-20 meeting? There is certainly a compelling case for robust fiscal action," said Doug Porter, U.S. economist at BMO Capital Markets.
The G20, which includes the Group of Seven most industrialized countries and increasingly influential emerging market economies, meets Saturday. See full story.
Little concrete global action is expected, but after China on Monday announced a $586 billion economic stimulus package, the stage could be set for further announcements by countries. BMO's Porter noted that most of the G7 countries have either already unveiled plans, or laid out their intentions, to stimulate their economies, save for France and Canada.
Brazil, the largest Latin American economy, might be the next in line. See full story.
As for the U.S., while Congress is believed to be working on a more comprehensive stimulus package, much attention so far has centered on possible aid for the ailing auto industry. Next week, Congress will hold a hearing on government support for General Motors GM, Ford F and Chrysler.
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