Holiday isn't likely to calm frayed nerves

L.A. Times Archives

Nov. 24, 2008 12 AM PT

ASSOCIATED PRESS

Wall Street faces another pivotal week, with investors enmeshed in a stock market that has been knocked down to 11-year lows amid fears about the fate of the nation’s automobile industry and banking system.

The market, considered a forward-looking gauge of the economy, appears to lack catalysts for buying. The triggers of last week’s massive stock losses continue to hang over the market, with no bailout coming yet for Detroit’s three automakers and Citigroup Inc. shares plunging to all-time lows.

That’s just the start of it -- even more uncertainty is expected in this 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 wild swings. Last week, the stock market slumped Thursday to lows not seen since 1997 before recovering with a big rally the next day.

The question analysts pondered over the weekend was whether investors can find a way to build on Friday’s rally. The answer could come this 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 F. Geithner, president of the New York Federal Reserve Bank, as Treasury secretary; Lawrence H. Summers, a Treasury secretary under President Clinton, is expected to be named director of the National Economic Council.

On Friday, the stock market got a jolt of confidence after talk of Geithner’s probable assignment began to float around trading floors. The Dow Jones industrial average surged nearly 500 points.

But the big gain finished a dismal week in which the Dow lost 5.3%, the Standard & Poor’s 500 index fell 8.4%, and the Nasdaq composite lost 8.8%. The Dow is off nearly 14% for the month of November and has plunged 40% from last year.

Obama’s news conference might also provide details about some of his plans to right the economy.

Over the weekend, Obama’s top aides said he wanted the new Congress to approve massive spending and fresh tax cuts in January, probably far outdistancing 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 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 them were to go bust.

The market also will be responding Monday to the deal that the government and Citigroup worked out late Sunday for the government to inject $20 billion more into the nation’s second-largest banking firm and guarantee up to $306 billion in bad loans and related assets. A crisis in confidence erased about half of the financial company’s stock-market value in a matter of days.

Citigroup has seen its market value plunge to about $21 billion Friday from more than $270 billion at the end of 2006.

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 reports that are typically the most watched are those focused on consumers, whose spending drives more than two-thirds of the U.S. economy.

Wall Street will again take note of Black Friday, the day after Thanksgiving, which kicks off the holiday shopping season. The day, typically the busiest shopping day of the year, is used as a gauge for consumer spending.

Several retailers will report quarterly results, including Tiffany & Co., Talbots Inc., American Eagle Outfitters Inc. and Dollar Tree Inc.

(BEGIN TEXT OF INFOBOX)

At a glance

TODAY

National Assn. of Realtors reports on existing home sales for October.

Treasury reports on weekly auction.

Quarterly results expected from Campbell Soup Co.

TUESDAY

Commerce Department releases revised results for third-quarter gross domestic product.

Standard & Poor’s/Case-Shiller releases its September and third-quarter index of home prices.

The Conference Board releases the consumer confidence index.

Quarterly results expected from Borders Group Inc., D.R. Horton Inc., Hormel Foods Corp.