Fed move, auto bailout pending
Don’t expect Wall Street’s turmoil to ebb in the year’s last full week of trading as investors face questions about an auto bailout, the banking crisis and the Federal Reserve’s final rate-setting meeting of 2008.
The market, still hovering at decade lows, has yet to show any sign of a traditional year-end rally. And in the next few days it will face a number of tests that could determine whether investors are able to get past all the negative economic news to end the year on a bright note.
The fate of Detroit’s three biggest automakers continues to be in question this week after the Senate failed to pass a $14-billion bailout for Chrysler and General Motors Corp. Ford Motor Co. has said it does not need government money to survive.
The White House this week is expected to unveil ways to provide emergency aid to the automakers, which have said they could run out of cash within weeks without government help. Many expect that the Bush administration will use money from the $700-billion financial bailout fund to provide loans to the carmakers.
“If the administration had some notion that this was a house of cards, that this was going to bring the entire economy down, then they have the authority to write checks out of the already passed bailout program,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
Wall Street put on another impressive show of resilience Friday, rebounding from an early sell-off to end higher after the government said it would assist U.S. automakers. The Dow Jones industrial average rose nearly 0.8% and ended the week with a loss of 0.07%.
The Standard & Poor’s 500 index rose 0.4% last week, while the Nasdaq composite index advanced 2.1%. For the year, the Dow is down 34.9%, the S&P; 500 is down 40.1% and the Nasdaq is off 41.9%.
“The market’s been pretty resilient,” said Matt King, chief investment officer of Bell Investment Advisors. “The bad news keeps coming out . . . but the market’s been holding firm and making some good gains. So to us that’s a good sign.”
Along with uncertainty about the auto sector, the Fed’s policy meeting on Monday and Tuesday also will remain in focus. The central bank is expected to lower its benchmark federal funds rate by half a percentage point to 0.5%.
But, with rates so low, the Fed will soon run out of room to lower interest rates further to stimulate the economy.
Goldman Sachs Group Inc. and Morgan Stanley, the two biggest U.S. investment banks, will report results this week.
Analysts expect Goldman on Tuesday to report its first loss since becoming a public company in 1999. Morgan Stanley is also expected to report a loss during the fourth quarter.
Investors also will pore over economic reports, including Tuesday’s release of the government’s consumer price index for November and data on housing starts.
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At a glance
TODAY
First day of a two-day meeting of the Federal Open Market Committee.
Federal Reserve releases industrial production numbers for November.
Treasury Department holds its weekly briefing, auction.
Transportation Secretary Mary Peters announces new effort to develop rail service in the Northeast Corridor and around the nation.
TUESDAY
Labor Department releases consumer price index for November.
Commerce Department releases report on housing starts for November.
Federal Open Market Committee is expected to announce a decision on interest rates.
Quarterly financial results expected from Adobe Systems, Best Buy, Goldman Sachs Group, Hovnanian Enterprises.
Leaders of South America’s Mercosur trade bloc meet in Salvador, Brazil, a day before colleagues from other Latin American and Caribbean countries arrive for a summit.
WEDNESDAY
Commerce Department releases report on current account trade deficit for the third quarter.
Energy Information Administration releases updated energy forecasts to 2030.
Quarterly financial results expected from ConAgra Foods, General Mills, Morgan Stanley, Nike.
Oil ministers of OPEC nations meet amid signals that the cartel plans to cut output quotas in an effort to stem a slide in world oil prices.
THURSDAY
Labor Department releases report on weekly jobless claims.
Freddie Mac releases report on weekly mortgage rates.
Conference Board in New York releases report on leading indicators for November.
Quarterly financial results expected from Discover Financial Services, FedEx, Lennar, Oracle, Research in Motion, Rite Aid.
