Bankers Take the Spotlight

The Fed seems to be doing its best to support the financial system without convening an emergency meeting of the Federal Open Market Committee to make rate cuts. But if market turmoil persists, expectations for such intervention will surely surge again. And the Fed will once again be threading the narrow needle of reassuring panicky markets without exacerbating the crisis.

"Like everyone else, [central banks] face uncertainty about the future (most of which is shared uncertainty), but, unlike almost anyone else, they must maintain an aura of wisdom, of being in control, almost as if they did know (a lot) more about the future than the rest of us," writes Ethan Harris, chief economist at Lehman Brothers. "They do not."

Likewise, investors may find out if the government-sponsored agencies Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote) will be allowed to buy up more mortgage-backed securities.

"I'd be surprised to see an emergency meeting, unless there was a market crash," says Saut. Saut says that recent market action like Thursday's 387-point drop in the Dow was not a crash, but part of a "selling stampede" that began July 19 after the Dow hit 14,000. He says stampedes generally take 17 to 24 trading sessions to the downside to wear out, and they can easily be interrupted by one- to three-day "throwback rally" attempts.

Friday was day 16.

Occasionally these stampedes last 25 to 27 days, Saut says, but "they are rare." The longest march he can remember in any direction was a 38-session upturn into the 1987 stock market crash on Oct. 19.

In the middle of the day Friday, the fed funds futures market had priced in 100% odds of a rate cut by September, and 100% odds of another cut by the end of the year, according to Miller Tabak.

And whether the Fed cuts rates or not, headlines like those from troubled mortgage lender Countrywide Financial(CFC Quote) Friday morning that the "unprecedented" disruptions in the credit markets may continue are surely not over.

Traders will have to digest much more economic data next week than they had this week as well, but any spillover from the current financial system trouble is unlikely to show up in July data.

Retail sales, to be reported Monday, are expected to show a modest rise for July. Producer prices and consumer prices measured by the PPI and CPI are likewise expected to show only a small uptick. The PPI is due Tuesday, while the CPI is out Wednesday.

Investors will get the report Thursday on housing starts and building permits for July.

Among companies, major retailers -- including giants Wal-Mart (WMT Quote), Macy's(M Quote) and Home Depot(HD Quote) -- will begin reporting their second-quarter results, providing added insight on how any credit and housing woes may be spreading to the consumer.

Long story short, keep holding on to your hats.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting