Market Preview: The Calm Before the Storm

NEW YORK (TheStreet) -- The market resumed its slow spiral lower on Monday but that's likely the calm before this week's storm.

Both the Dow Jones Industrial Average and the S&P 500 have fallen in seven of the past eight sessions with only Friday's low-volume, week-saving rally providing a respite from trading screens flashing red.

Tuesday, though, brings some serious headline firepower, starting off with a triple dose of market-moving events, the first real hectic day of earnings season with three Dow components reporting, the consumer price index for June and probably most importantly, an appearance by Federal Reserve Chairman Ben Bernanke before Congress.

With Wall Street poised for another day of measuring Bernanke's words and reading his body language to determine his inclination toward further easing, Credit Suisse gave its timetable for QE3 on Monday and wondered just how much of an impact any action was likely to have at this point. The firm believes QE3 is "looking increasingly likely before Election Day in November" with the announcement most likely coming at the central bank's mid-September policy meeting.

"This raises a natural question: Will additional QE work?," Credit Suisse wrote. "After all, few would argue that US interest rates are too high or that banks in the US need still more excess reserves. Empirical studies on the effectiveness of the Fed's balance sheet operations suggest that asset purchases designed to address general economic malaise are less potent than programs targeted at specific market disruptions. Even QE proponents stress that asset purchases are not the silver bullet that will cure all that ails the US economy."

That ailing U.S. economy is what's starting to really weigh on the minds of investors during this straight summer of the soft patch. Prior to Friday's rally, Deutsche Bank stuck by its year-end call for the S&P 500 to finish 2012 at 1475 but it went on the record as saying the next big 5%-plus move is more likely to be the downside than up.

"This is the 3rd soft patch since the recession ended and, so far, investors seem less prone to panic," Credit Suisse wrote. "This is probably because of prior wolf cries and missed buying opportunities in 2010 and 2011. However, soft patch III is arguably worse than I and II as this time it includes Asia. Although valuations are supportive and should provide upside on mere recession absence, it is important to consider that soft patches can easily trigger corrections."

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