Our Awful Situation

The Week Ahead: Heavy Turbulence

Posted by Charlie Kilo on July 13th, 2008

I predict that the Dow will hit 10.5 this week. I think we’ll look back on this week as the final economic act. The end game. The tipping point:

Expect heavy turbulence in the week ahead.

Analysts say hurdles for the stock market in the coming week include continued uncertainty about financial sector—specifically mortgage giants Fannie Mae and Freddie Mac —as well as the unrelenting pressure of rising oil prices.

There is also a heavy calendar of economic data, corporate earnings reports, plus two days of testimony on the economy from Fed Chairman Ben Bernanke.

“The financials are going to have a tough go of it next week,” said Jefferies and Co. Chief Strategist Art Hogan. In addition to the swirl of speculation that has driven Fannie and Freddie shares lower and lower, major banks are reporting results and are expected to unveil more write downs.

The announcement late Friday of the second biggest U.S. bank failure ever also adds to the gloom. After the bell, regulators reported that they seized IndyMac Bank, an aggressive mortgage lender with $32 billion in assets.

Also worrying Wall Street is Lehman Brothers stock, which has been spiraling downward on credit worries. “A resolution (for Fannie and Freddie) would help. Whether it’s a government take out or a back stop committing access to capital,” said Hogan.

James Paulsen, chief investment strategist at Wells Capital Management said oil will be a concern for stocks in the coming week but Freddie and Fannie could be more worrisome. “The meltdown of Freddie and Fannie (stocks) will not reduce the ability of what they can do,” but the market remains fearful, he said.

The Dow lost 1.7 percent, falling to 11,100 in the past week. For the first time in two years, it dipped below the key 11,000 level. The Nasdaq lost just 0.3 percent for the week and the S&P was down 1.9 percent, finishing at 1239. The financial sector declined 6.3 percent for the week, followed by consumer discretionary with a 4 percent loss. The winner was the S&P healthcare sector, up 1.3 percent.

“We’ll have a plethora of economic data but none of it will take away from the earnings data,” said Hogan.

Hogan said most earnings will be routine, like those from General Electric Friday which was in line with expectations. Yet, “I think we could get some upside surprises because we’ve priced in worst case scenario in a lot of areas,” he said.

Comments

{

}

Our Awful Situation

The Week Ahead: Heavy Turbulence

Comments

Search

Recent Posts

Sites of Interest

Archives

Categories