Wall Street heads into another turbulent week on Monday, with Congress still hammering out a bailout for automakers and investors having to digest more data expected to show the economic malaise deepening.
Investors received no respite to worries about the economy over the weekend, with President-elect Barack Obama declaring on Sunday that the situation is destined to get worse before it gets better. Major U.S. stock indexes fell last week after a series of economic reports left little indication that the recession is easing.
Chief among investors’ economic worries during the next few days will be the fate of Ford Motor Co., General Motors Corp., and Chrysler LLC. The three automakers are seeking $15 billion in short-term aid from Washington to stave off bankruptcies that would lead to a flood of job losses.
Obtaining the aid might come in exchange for the heads of the companies’ top executives. Sen. Chris Dodd, a Democrat who chairs the Senate Banking Committee, said Sunday that Rick Wagoner, GM’s chief executive, “has to move on.” He also said Chrysler should give up its independence and be acquired by another company.
But the negative news facing Wall Street might not actually send stocks plunging this week. There’s a growing sense among many investors that disappointing corporate reports and economic data might give the government incentive to pass a bailout for Detroit, and also lead to lower interest rates and even a new stimulus package.
Thomas J. Lee, equities analyst at JPMorgan, said Wall Street has already factored in much of the negative news about the faltering economy and sluggish corporate profit growth. On Friday, the Dow Jones industrial average gained 259 points despite a Labor Department report that showed the nation lost more than a half a million jobs last month.
“You’re not going to have another big jobs report until January,” Lee said, noting that Friday’s jobs report was the big piece of data for the month. “Everything now is more or less confirming what we already know.”
There will be no shortage of data this week. The Labor Department will issue its weekly report on unemployment on Thursday, with the number of first-time claims likely to be above 500,000 for a fourth-straight week.
The Commerce Department will follow on Friday with its report on retail sales, a closely watched gauge considering that consumer spending drives more than two-thirds of the U.S. economy. The government is expected to report that sales fell in November for a fifth-straight month, despite a surge of shoppers over the Thanksgiving weekend.
Other economic reports include the University of Michigan’s consumer sentiment index and the Labor Department’s Producer Price Index.
The market has been able to claim a victory of sorts when it comes to absorbing negative economic news. Except for a 680-point drop in the Dow last Monday, stocks have repeatedly been able to overcome bleak economic data and corporate announcements.
Any advance in stocks would be seen as a sign that stability is returning to Wall Street. Friday’s gain was the eighth for the Dow in 10 sessions, but stocks still finished lower for the week.
The Dow fell 2.2 percent, the Standard & Poor’s 500 index lost 2.3 percent, and the Nasdaq composite index shed 1.7 percent.
On Sunday evening, major stock indexes were barely changed in futures trading as traders seemed unwilling to make bets. Dow Jones industrial average futures shed 24, or 0.28 percent, to 8,588. Standard & Poor’s 500 index futures fell 2.90, or 0.33 percent, to 869.50; while Nasdaq-100 futures fell 3.25, or 0.28 percent, to 1,174.75.
The next few weeks might also shed some more light on how companies are faring during the fourth quarter, and that could trigger big swings for the market. In preparing to report fourth-quarter results in January, many companies might begin to issue warnings about their results.
Last week, a number of companies — including Merck & Co. and DuPont — trimmed guidance for what is expected to be another gloomy quarter.
And others might come this week. Earnings are expected from a number of major companies, including H&R Block Inc., AutoZone Inc., Kroger Co., and Costco Wholesale Corp.
Investors will also start to look for signs about what kind of losses financial companies like Goldman Sachs Group Inc. and Morgan Stanley might report.
Ryan Larson, head of equities trading at Voyageur Asset Management, said many on Wall Street are keeping a close eye on financial stocks to help gauge any recovery for the market and the economy. For instance, Hartford Financial Services Group Inc. raised its full-year operating profit forecast and said the capital outlook at its insurance units was strong.
“The longer we can go without banks continuing to need to raise capital every single day, that’s going to be a good thing,” Larson said.
While some companies continue to tough out a brutal economy, others might turn toward dealmaking to weather the recession. There was speculation over the weekend that Deutsche Boerse AG, which runs the Frankfurt stock exchange, was in talks with NYSE Euronext about a possible deal.
The German bourse said late Sunday that any talks with the New York Stock Exchange, which also operates Paris-based Euronext, has “ended without any conclusion.” A spokesman for the NYSE would not comment.