The opening bell may have a nervous ring to it
Wall Street remains fragile as investors wonder if they can trust stocks' bounce-back from the brink of a bear market.
After last week's steep plunge and stirring comeback, investors are desperate for clues to whether the market's troubles are over or if more pain lies ahead.
Last week stocks posted their first weekly gain of the year, providing a much-needed break from the market's crushing losses. The Standard & Poor's 500 index rose 0.4 percent during the week and is up a more impressive 1.5 percent from the tumultuous week's low.
Even after this encouraging week, though, the S&P 500 is down nearly 15 percent since last year's high and off 9.4 percent this year. The market's fall has shredded $3 trillion in shareholder wealth since the high and $1.7 trillion this year so far.
The Dow slumped 171.44 points Friday to 12,207.17. That could be a sign that investors should continue to brace for more turbulence. "There is nervousness about how long the rally will last," says Joseph Saluzzi of Themis Trading.
With the economic outlook uncertain despite interest rate cuts from the Federal Reserve and a coming economic-stimulus package, investors this week will watch key events and data for a sign of the market's direction.
- The Fed's next move. Investors are still buzzing about the Fed's surprise rate cut last week, which dropped the lending rate banks charge each other by three-quarters of a point to 3.5 percent. But the central bank meets again on Tuesday and Wednesday, and investors expect another cut and indications on how worried the Fed is, says Frank Holmes, CEO of U.S. Global Investors. Holmes expects a half-percentage-point reduction. "The Fed is still dealing with bigger systemic economic risks," he says.
- The shape of corporate earnings. A bulk of the 340 companies in the S&P 500 that have not yet reported will do so this week. So far, earnings have been weak, with 28 percent of companies missing estimates, Thomson Financial says. That exceeds the 20 percent that historically disappoint.
Even more troubling is the weak guidance some companies have given. Analysts have already cut their first-quarter earnings growth expectation to 3.2 percent from the 5.7 percent expected on Jan. 1, Thomson says.
- A sign that financials are stabilizing. Improving the health of the nation's financial system will go a long way to make stock investors feel better. While shares of banks and brokers rallied strongly following the Fed's rate cut, they stumbled again Friday.
Investors remain on edge since so much needs to go right before stocks get the all-clear. "It's clear the momentum is in a downturn," says Doug Sandler of Wachovia Securities. "We'll have to live through that."
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