As Wall Street waits for Congress to act on President Barack Obama's stimulus plan, investors will look to a swath of earnings reports and comments from the Federal Reserve this week for clues on when the economy might begin to improve.
Hundreds of companies including those in technology, energy and consumer products industries, will issue reports. Yahoo Inc., Sun Microsystems Inc. and Texas Instruments Inc. are among the tech firms reporting, while companies like Procter & Gamble Co., Kimberly-Clark Corp. and Starbucks Corp. will give an indication of consumers' willingness to spend. Reports from AT&T Inc., ExxonMobil Corp. and Caterpillar Inc. are also due.
While most major financial firms have already issued results, reports from American Express Co. and Wells Fargo & Co. could intensify concerns about the industry if they are worse than expected.
Wall Street has largely written off the fourth quarter as disappointing, and so investors for the most part have looked past weak earnings. Instead, the market's direction has largely been dictated by companies' forecasts. Any indication that business conditions will remain challenging in 2009 could rattle investors and send stocks falling, analysts said, while any positive surprises could give the market a boost.
"Everyone knows that the fourth quarter was bad," said Quincy Krosby, chief investment strategist at The Hartford. "If we can get some positive surprises in terms of guidance, like IBM's, the more we can get of that, it will help the tone of the market."
IBM Corp. surprised investors last week with a forecast for 2009 well above what analysts expected. That helped send the Dow Jones industrials up 3.5 percent Wednesday, a rebound that nearly erased the previous session's 4 percent drop; that slide was caused by further signs of struggle among the nation's big banks.
But the cheer from IBM's report was quashed by downbeat news from Microsoft Corp. the following day. The software giant posted an 11 percent drop in fourth-quarter profit and said it will slash 5,000 jobs over the next 18 months. That led to another selloff in stocks and helped send all the major indexes down more than 2 percent for the week. The biggest drop came from the technology-laden Nasdaq composite index, which tumbled 3.4 percent.
The mix of outlooks has made it difficult for investors to take any firm stance on stocks, leading to huge price swings.
"During periods of earnings, volatility tends to pick up even in the best of times," Krosby said. "But certainly in this environment that we're in, in which you're groping for any guidance six months out, volatility is going to pick up."
Meanwhile, there is uncertainty in the market as investors wait for the government's next moves to help the economy.
While investors hope Congress will soon pass some sort of economic stimulus plan, they fear the now 14-month-old recession will persist in spite of government's efforts. The White House warned Sunday the country could face a long and painful recovery, even with major government intervention.
Congress is working on an $825 billion economic recovery package that dedicates about two-thirds to new government spending and the rest to tax cuts. Congress has also given Obama the OK to spend the remaining $350 billion of the $700 billion financial bailout package passed last fall, and investors will be watching to see how that money is allocated, analysts said.
Investors will also be mindful of the Federal Reserve's assessment of the economy, to be issued after its two-day meeting that starts Tuesday. While the Fed cannot cut its benchmark fed funds rate further from the current zero to 0.25 percent, the central bank could announce further efforts to help unfreeze the housing and credit markets.
"We're not expecting a whole lot out of that Fed meeting," said Matt King, chief investment officer of Bell Investment Advisors. "Certainly their comments are going to be interesting. I don't think that much has changed month to month, but there is always the potential that they could surprise us in terms of what kinds of assets they're buying."
The Fed has been buying mortgage-backed securities held by Fannie Mae, Freddie Mac and Ginnie Mae with the goal of helping the troubled mortgage-finance and housing markets. Mortgage rates have dropped since the Fed announced the creation of the $500 billion program late last year. The Fed has also been buying commercial paper, the short-term debt companies use to pay everyday expenses.
Several economic reports are scheduled this week, including the National Association of Realtors' existing home sales data for December on Monday, as well as the Commerce Department's report on durable goods orders for December and the Labor Department's weekly jobless claims report, both set for Thursday.
Perhaps the most important economic indicator though is the Commerce Department's first report on fourth-quarter gross domestic product on Friday. Many analysts believe the GDP, the nation's total output of goods and services, plunged at an annual rate of 6 percent in the quarter, after dropping 0.5 percent in the third quarter.
While investors' expectations for economic reports are already very low, the GDP report could spook the market, King said.
"The GDP number is going to be pretty shocking," he said. "I don't know if the average person is prepared for (that big of) a retrenchment in GDP. It may have some effect on the market in the short term."