Wall Street enters the new week filled with trepidation about what lies ahead for the financial sector.
Late Sunday, investors were still waiting to learn the fate of foundering Lehman Brothers Holdings Inc., there were reports that Bank of America Corp. and Merrill Lynch & Co. might merge and insurer American International Group Inc. appeared on the verge of a huge restructuring. Meanwhile, U.S. and foreign banks were working on a plan to cushion the global banking system from Lehman’s possible failure, a top investment banking official said on condition of anonymity because the discussions were ongoing.
However all the developments turned out, it was clear that the financial system still had much work to do before it could be considered healthy. And a stock market that has stumbled continually over the industry’s troubles looked to be in for at least a rocky start when trading resumed Monday — it was clear that investors’ confidence in financial executives’ ability to clean up their books is still falling.
Meanwhile, some of the biggest financial institutions — including Goldman Sachs Group Inc. and Morgan Stanley — are scheduled to post quarterly results this week.
Goldman and Morgan Stanley are expected to report declines in quarterly profits amid the continuing problems and losses in the credit markets. Lehman already said last week it would post a hefty loss, and Wall Street is hoping for more details.
“Our financial institutions are suffering. I don’t think we’re at the end of the tunnel yet,” said Christian Menegatti, lead analyst for the economic and financial Web site RGEMonitor.
The stock market has been absolutely frenetic lately, as a simple chart of the Dow Jones industrial average’s jagged, back-and-forth moves shows. One moment, investors might be cheering — as they did last Monday for the Fannie Mae and Freddie Mac takeover. But the next moment, they are cashing out.
After rising nearly 300 points on Monday, falling by that much on Tuesday, and then seesawing for the rest of the week, the Dow ended the week up 1.79 percent. The Standard & Poor’s 500 index rose 0.76 percent, while the Nasdaq composite index rose 0.24 percent.
There are plenty of other issues for the market to deal with this week.
The Federal Reserve meets again to discuss monetary policy. The market expects the Fed to stand pat on interest rates when it meets this Tuesday. Investors will carefully parse policymakers’ assessment of the economy to see if the central bank’s concerns about inflation have abated. If they have, market participants might start betting that the Fed will keep rates steady well into next year, or perhaps even cut them again, before raising them again.
Back when oil prices were surging, some investors were anticipating a rate hike by the end of the year. Between the summers of 2007 and 2008, the key federal funds rate has been lowered to 2 percent from 5.25 percent.
Economic data could also return to the forefront this week, as investors wonder whether the consumers are getting some relief from a pullback in fuel prices.
The Labor Department is expected to report a 0.1 percent increase in consumer prices, according to the median estimate of economists polled by Thomson/IFR. Core consumer prices, which strip out energy and food, are expected to rise by 0.2 percent.
The Commerce Department is expected to report that housing starts fell to 950,000 units in August from 965,000 in the previous month.
Other major companies reporting earnings this week include electronics maker Best Buy Co., food company General Mills Inc., shipper FedEx Corp. and software maker Oracle Corp.