Coming Week: Horror Show

The large batch of economic data due out next week reads like a lineup for the soundtrack of a horror show for financial markets.

Track One is falling home sales. Track Two is inflation. Track Three is a manufacturing slowdown. Track Four is flagging economic growth and job losses, and Track Five is the consumer spending drop. All these tunes will play over a drumbeat of retail earnings reports, where the outlook is not upbeat.

This, combined with the continuing bull market in commodities, means the smart money may be going platinum.

"I don't see much on the schedule that can help this stock market," says Paul Mendelsohn, chief investment strategist with Windham Financial Markets. "I don't see any surprises to the upside in these numbers, but I see a lot that could do damage to the market."

Perhaps the biggest market-moving event will come with a decision expected next week on whether the teetering bond insurance giants, MBIA(MBI Quote - Cramer on MBI - Stock Picks) and Ambac Financial (ABK Quote - Cramer on ABK - Stock Picks), should retain their triple-A credit ratings from Moody's Investors Service and Standard & Poor's.

Both companies are facing huge potential losses on insurance policies they underwrote on structured finance securities tied to subprime mortgage loans amid a meltdown in the U.S. housing market. If they lose their pristine credit ratings, their business models will be broken. In light of this, the bond insurers, their clients and their regulators are scrambling to devise a rescue plan to either keep them intact or contain the fallout from their demise, which threatens to trigger another round of massive writedowns on derivatives for the nation's financial institutions.

A report late Friday from CNBC that a consortium of banks, including Citigroup (C Quote - Cramer on C - Stock Picks) and Wachovia (WB Quote - Cramer on WB - Stock Picks), are putting together a bailout plan for the bond insurers sparked a rally in stocks.

That left the Dow Jones Industrial Average and the S&P 500 up 0.3% and 0.2%, respectively for the week. The Nasdaq Composite was off 0.8% for the week.

Meanwhile, Federal Reserve Chairman Ben Bernanke will testify before Congressional committees on Wednesday and Thursday as concerns about rising inflation threaten to complicate the central bank's policy of easing interest rates to help the economy avoid recession.

Those concerns could be exacerbated Tuesday morning, when the Labor Department is expected to report that its producer price index rose 0.3% in January. Standard & Poor's Senior Investment Strategist Sam Stovall says he's expecting the gauge of wholesale prices to show a year-over-year gain of 6.9%, echoing last week's read on the consumer price index that showed inflation on the upswing.

"That's a bit disconcerting," says Stovall.

On Wednesday, the government is expected to report a 4% slide in orders for durable goods in January, reversing a surprising 5% increase in December. That report is known for its volatility, and economists expect weakness in the manufacturing sector to show up in the reading this time around.

Also on Wednesday, the government will report sales of new homes in January, and economists expect more signs of deterioration in the slumping U.S. residential real estate. The National Association of Realtors will report sales of existing homes on Monday.

"People aren't paying much attention to home sales right now because it's basically a given that they're going to be terrible," says Stovall.

Another piece of data that may not attract much attention from investors, barring some dramatic shift, is the preliminary reading of fourth-quarter GDP growth due out from the government on Thursday morning. That will be an update to a previous report, which showed the economy growing by a mere 0.6% in the fourth quarter. Economists on Wall Street are expecting that number to tick up to 0.8%.

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