Eager to exit ‘08, traders are wary of the new year

Investors are preparing to close out the last three trading days of 2008 amid Wall Street’s worst year since Herbert Hoover was president.

The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2% thus far. That’s the biggest plunge since 1931, when the Great Depression sent stocks reeling 40.6%.

The Standard & Poor’s 500 index is set to record the biggest drop since its creation in 1957. The index of the United States’ biggest companies is down 40.9% for the year.

With these statistics in mind, it’s little wonder that investors are all too happy to close the books on 2008. Analysts are already looking toward January as a crucial period for the market as it tries to recover some of the $7.3 trillion wiped out from the Dow Jones Wilshire 5,000 index, the broadest measure of U.S. stocks.

“It is hard to gauge a recovery because there’s so many things out there that are interactive with each other,” said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. “Nothing is in a vacuum. Anybody who is managing money has to be on the cautious side for at least the first six months of 2009.”

He said many analysts were looking past this week and focusing on next month, especially with Barack Obama set to be sworn in as president Jan. 20. There is hope that the new administration will deliver another stimulus package, which, along with December’s interest rate cuts, might help quell the financial crisis.

Trading is expected to remain volatile with many market participants on the sidelines during the holiday-shortened week, but that doesn’t mean investors won’t be kept busy. With no Santa Claus rally last week, economic data slated for the coming days could sway the market’s mood going into 2009.

Investors will be awaiting details about how retailers fared in the post-Christmas sales period, especially because consumer spending drives more than two-thirds of the U.S. economy. The main question is whether bargain prices at the malls will be enough to rescue retailers from a bleak holiday shopping season.

Meanwhile, another gauge of how consumers feel about spending money will be released Tuesday. The Conference Board will issue its December index of consumer confidence, which is expected to rise to a reading of 45.2 for this month, up slightly from 44.9 in November.

The Labor Department will report on weekly jobless claims Wednesday, after a 26-year high of 586,000 initial filings in the week ended Dec. 20.

But the most anticipated economic data will be delivered Friday, when investors get a fresh reading on the manufacturing sector. The Institute for Supply Management releases its December survey of purchasing managers.

The index is expected to show a reading of 35.5, down from November’s 36.2, according to economists polled by Thomson Reuters. A reading above 50 points to expansion, while a reading below 50 shows a contraction.

Little is slated in the way of corporate news. The final week of the year -- when trading volume is low and many money managers are on vacation -- is often a time when companies slip through weak quarterly forecasts.

Investors were still awaiting word on whether GMAC Financial Services, the financing arm of General Motors Corp., will be eligible for a government bailout. GMAC received the Federal Reserve’s approval to become a bank holding company last week, but that was contingent on putting a complicated debt-for-equity exchange in place by 11:59 p.m. EST Friday.

That deadline passed with no statement from the company. Analysts have speculated that if GMAC doesn’t obtain financial help, it would have to file for bankruptcy protection or shut down, which would be a serious blow to parent GM’s own chances for survival.

General Motors and Chrysler will receive the first part of the $13.4 billion in emergency loans from the government today. Each will receive about $4 billion, then get the second payment of $5.4 billion on Jan. 16. GM gets a third installment of $4 billion on Feb. 17.

Ford Motor Co. did not participate in the government rescue plan.

IndyMac Bank, one of the best-known institutions to fail amid the financial crisis, might be close to getting a new owner. The buyers include private equity firms J.C. Flowers & Co. and Dune Capital Management, according to the New York Times, which cited people close to the matter.

The proposed sale could be announced by this morning, the report said.

Meanwhile, Kuwait’s government on Sunday scrapped a $17.4-billion joint venture with U.S. petrochemical giant Dow Chemical Co. after criticism from Kuwaiti lawmakers that could have led to a political crisis in the small oil-rich state.

The Kuwaiti Cabinet, in a statement carried by the state-owned Kuwait News Agency, called the venture “very risky” in light of the global financial crisis and low oil prices. Dow Chemical said it was “extremely disappointed” with the government’s decision and was evaluating its options under the joint-venture agreement.

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At a glance

TODAY

Weekly report on Treasury auction is released.

TUESDAY

The Conference Board in New York releases the consumer confidence index.

Standard & Poor’s/Case-Shiller releases its October index of home prices.

Nevada Lt. Gov. Brian K. Krolicki is arraigned on charges he mismanaged a multibillion-dollar college savings program when he was state treasurer.

WEDNESDAY

Labor Department releases weekly jobless claims.

Mortgage company Freddie Mac releases weekly mortgage rates.

THURSDAY

New Year’s Day. Treasury is closed.

FRIDAY

The Institute for Supply Management releases its manufacturing index for December.