Change text size

• Email This Article
• Print This Article
• Digg This
• Delicious
• Subscribe

Major market indices see their largest weekly losses in seven years thanks to deepening concerns about the economy. For the second straight week, the major market indices were very volatile on a number of historic events. Normally, when the employment report is on tap, it garners most the attention, but there were a lot of other events that impacted stocks and the economic outlook during the week. This week’s calendar is very light, which will leave the focus on the Fed, the bailout package and recession talk.

Monday: None

Tuesday: ICSC-UBS Store Sales, Redbook, FOMC Minutes

Wednesday: MBA Mortgage Applications, EIA Petroleum Status, Pending Home Sales Index

Thursday: EIA Natural Gas Report, Jobless Claims, Chain Store Sales, Wholesale Trade

Friday: International Trade, Import and Export Prices

Last week saw the House reject a bailout package on Monday and the pass a revised bill on Friday. The Senate made some changes to the plan, including a change in the amount the FDIC will cover per banking institution to $250,000 from $100,000. The $700 billion package was quickly signed by President Bush, but it will be interesting to see how this bill impacts a damaged credit market. Just the passing of the bill should provide some help on the view things are going to get better, but beyond this emotional benefit, analysts are mixed on their view of how much the plan will do to keep the economy out of a recession. The fact is that something needed to be done to avoid historic problems, but in and of itself, the bailout package will not solve the problems the economy is suffering.

In fact, the global economy is starting to show signs of infection as well with several European banks needing government help to stay solvent. This has led to sharp declines in European and Asian markets and should ease ECB President Trichet’s stance on cutting rates. In fact, the feeling is that the Bank of England will cut rates by at least a quarter point at its Thursday meeting.  

This week’s economic calendar is extremely light with only the normal batch of weekly reports and the International Trade release due out Friday. However, a number of Fed speeches are on tap, including a couple of appearances by Fed Chairman Bernanke on Monday and Tuesday. Mr. Bernanke will be a speaker at the National Association for Business Economics annual meeting in Washington to start the week. Other speeches on tap include Minneapolis Fed Bank President Gary Stern and Philadelphia Fed Bank President Charles Plosser.

Jobless claims data for the week will be closely watched given the weakness seen in jobs data last week. Jobless claims shot to a level of 497,000, putting the four-week moving average at 474,000. Many economists feel that a level above 500,000 points to recession, although many would argue we are already in one. The nonfarm payrolls data was also disappointing last week with payrolls down by 159,000, about 50 percent lower than anticipated.

One positive side effect to a slowing economy is the sharp decline in energy prices. After hitting a high above $148 in mid-July, crude is trading close to $90 a barrel Monday. A definite slowing in the global economy is lowering demand and the outlook for energy going forward. This at least takes some relief from commuters and businesses that use oil, but what good are low oil prices if people lose their jobs.

There are a lot of ideas of how to end the credit crisis and thus the global slowing economy. One is to refinance all home loans at a fixed 5.25 percent or something similar. Bank of America (BAC) took steps to help consumers today when it announced a deal with many states to modify loan provisions so that thousands can stay in their homes. Of course, BAC was nearly forced to do this deal, given a lawsuit over the company’s deceptive mortgage practices.

Overall, economic reports will have little impact on stocks this week, but the Fed will. We can expect to see a lot of different announcements dealing with liquidity as the Fed try to get the credit markets up and running. The bailout package will help, but isn’t the answer in and of itself in solving the world’s economic woes.   

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

• Email This Article
• Print This Article
• Digg This
• Delicious
• Subscribe

Recent Articles by Jody Osborne, Optionetics.com

• November 20, 2008
  Economic Watchdog, November 20
• November 20, 2008
  Closing Wrap-Up, November 20
• November 20, 2008
  Morning Watch, November 20
• November 19, 2008
  Economic Watchdog, November 19
• November 19, 2008
  Closing Wrap-Up, November 19