Poor retail data weighed on stock prices last week, and Len Blum, managing director for Westwood Capital, notes that some retailers will be reporting earnings next week, as well. Blum expects negative news from home-improvement store operators Lowe's (LOW - Get Report) and Home Depot (HD - Get Report), though the discounter BJ's (BJ) may have some positive news as consumers flock to bargain stores.
But even that may not be the best of news for the U.S. economy. "I think what's driving the market is that the American consumer -- who has seen the value of his home fall dramatically, is losing his job, seeing the value of stock holdings decline -- is shell shocked," says Blum. "I think the consumer is pulling way back, and it's going to be worse than we fear."
Another factor lurking in the distance is whether technical trades and forced liquidations by hedge funds and mutual funds have run their course. Judging from Thursday's last-minute 500-point rally, Marian Kessler, co-portfolio manager of the Becker Value Equity Fund, suspects not.
"Was that short covering?" she asks. "It's certainly a possibility that it was a technical rally. It certainly was a low-quality rally. You don't really know what kind of manipulation is going on in the markets, and technical trading seems to still be playing a role."Kessler has taken advantage of the market volatility, booking profits over the summer, then using that cash to buy out-of-favor stocks last month at what she calls "bargain-basement prices." But she notes that the economic outlook, especially concerning retail sales is "grim," even if positive news comes out of Washington next week as Congress considers a stimulus package, an automaker bailout and other emergency measures during its lame-duck session. Shacknofsky expects further volatility ahead. "These good days that we're having are dead-cat bounces or rallies in the bear market," he says. "And whenever it gets some strength, you'll just see the market sell into it."