Coming Week: Waiting for Rescue

The stock market's direction next week hinges largely on whether a deal can be hammered out for the Bush administration's $700 billion rescue plan, which temporarily fell apart late Friday.

Wall Street was held hostage during the week waiting for regulators to reach a decision on the Treasury Department's bailout plan that would see $700 billion worth of new debt to finance the purchase of troubled loans and bad debt from struggling U.S. banks. Over the last five sessions, the Dow Jones Industrial Average has lost 2.2%, the S&P 500 has slid 3.3%, and the Nasdaq Composite has given back 4%.

"All we are focused on is this plan, and while that's happening it's impossible to predict what will move the needle next week," says Art Hogan, chief market analyst with Jefferies. "We're being held hostage by this, and we're ignoring everything else."

Even as negotiations have soured, politicians remain hopeful that an agreement will be in place before the unofficial deadline of 6 p.m. EDT Sunday. Still, market observers are worried that lawmakers will miss that deadline.

"My first and foremost hope is that we have something announced on the bailout," says Robert Pavlik, chief investment officer with Oaktree Asset Management. "It's going to be the driving factor of the market. If it does get passed early or if we get an indication of an agreement, the market could tick higher. Even if the bill gives Wall Street the help in piecemeal, it's better than nothing at this point."

Michael Sheldon, chief market strategist at RDM Financial, says that if Congress hasn't agreed on a rescue package by Sunday, it must at least show it is making progress. "If we don't see that progress, that doesn't create a favorable situation over the near term. Investors are rightly very nervous over the current market environment," he says.

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