Wall Street faces another pivotal week, with investors enmeshed in a stock market knocked to 11-year lows amid growing fears about the fate of the nation’s ailing automobile industry and banking system.
The market, considered a forward-looking gauge of the economy, appears to lack any catalysts for buying. The triggers of last week’s massive stock losses continue to hang over the market, with no bailout seen for Detroit’s three automakers and Citigroup Inc. shares plunging to all-time lows.
And, that’s just the start of it — even more uncertainty is expected to come in a week shortened by the Thanksgiving holiday. A stream of economic reports, the start of the holiday shopping season, and more clues about the job market will keep investors scrambling in the coming days.
One thing investors can expect is more volatility in a fractious market, where thin volume exacerbates the market’s wild swings. Last week, the stock market slumped to lows not seen since 1997 on Thursday before recovering with a big rally the next day.
The question analysts pondered over the weekend is whether investors can find a way to build on Friday’s rally. The answer could come Monday afternoon when President-elect Barack Obama is scheduled to introduce his economic team.
“It seems to me that President-elect Obama has a chance to do something important that could improve people’s psychology,” said Peter Cohan, principal of Peter S. Cohan & Associates. “If Obama can reverse the psychology — make people believe that he understands the problem and will do what’s needed to solve it — then they will start to engage again with the economic system.”
Obama is expected to name Timothy Geithner, president of the New York Federal Reserve bank, as Treasury Secretary; Lawrence Summers, a former treasury secretary under President Bill Clinton, is expected to be named as director of the National Economic Council.
There were some preliminary signs Sunday evening that investors were in a cautiously optimistic mood. Dow Jones industrial average futures were up 33 points, or 0.41 percent, at 8,069.00. Standard & Poor’s 500 index rose 5.70 points, or 0.72 percent, at 797.70, while Nasdaq 100 futures added 4.50, or 0.41 percent, at 1095.50.
On Friday, the stock market got a jolt of confidence after talk that Geithner would become Treasury Secretary began to float around trading floors. The Dow Jones industrial average surged nearly 500 points.
However, the big gain finished a pretty dismal week in which the Dow lost 5.3 percent, the Standard & Poor’s 500 index fell 8.4 percent, and the Nasdaq composite lost 8.8 percent. The Dow is off nearly 14 percent for the month of November, and has plunged 40 percent from last year.
Obama’s news conference might also provide details about some of his plans to help right the economy.
Over the weekend, Obama’s top aides said he wants the new Congress to approve massive spending and fresh tax cuts in January, probably far distancing a $175 billion campaign proposal, so he can sign it after taking office. He also outlined the framework of a plan to save or create 2.5 million jobs by the end of 2010.
Obama could also face questions about what should be done about Ford Motor Co., Chrysler LLC, and General Motors Corp. Congress postponed debates on aid to the automakers, and that caused even more fears about how steep the U.S. recession would be if one of those companies were to go bust.
There are also concerns about the fate of Citigroup, the leading U.S. financial services company whose stock price has been halved because of a crisis of confidence in its future. Citi has seen its market value plunge to about $21 billion on Friday from more than $270 billion at the end of 2006.
The company’s board met Friday to discuss the situation, and management maintains that it is adequately capitalized and doesn’t plan to break up the company. On Sunday, the Treasury Department and the Federal Reserve was weighing a plan to stabilize Citigroup, according to people familiar with the talks. They spoke on condition of anonymity because the discussions were ongoing.
One option being considered is taking some of the risky assets held by Citigroup off its balance sheet, a move that would give the company more breathing room and put it in a better position to raise capital. It was unclear, however, exactly how that option might be structured, the people said.
A spokesman for New York-based Citigroup declined comment.
Investors are also expected to pay close attention to a number of economic reports due to be released during the week, including readings on existing and new home sales for October, and weekly U.S. jobless claims data. But the most-watched reports are those focused on consumers, whose spending drives more than two-thirds of the U.S. economy.
Wall Street will again look to Black Friday, the day after Thanksgiving that kicks off the holiday shopping season. The day, typically the busiest shopping day of the year, is used as a gauge for consumer spending.
There are also a number of retailers that will report quarterly results, including Tiffany and Co., Talbots Inc., American Eagle Outfitters Inc., and Dollar Tree Inc.