The short-selling ban implemented by the
Securities and Exchange Commission
may carry upward momentum into the coming week, but analysts say there are still too many variables in the market that could derail a complete recovery.
Last week, the collapse of
, the surprise acquisition of
Bank of America
and the $85 billion bailout of
weighed on the stock market, forcing the worst selloff Wall Street has experienced since the first trading day after the Sept. 11 terrorist attack in 2001.
Despite a strong rally over the previous two trading sessions, spurred by the SEC's decision to put into place temporary measures to prohibit short-selling in financial companies as well as the government's plan to buy mortgage-backed securities and support the mortgage market with more liquidity, the major indices finished little changed for the week. The
Dow Jones Industrial Average
dipped 20 points, while the
tacked on 3 points and the
added 12 points.
"If you were Rip Van Winkle for a week, you'd think that not much happened," says Paul Nolte, director of investments with Hinsdale Associates. "However, the
and the Treasury's balance sheet have been altered dramatically over the last five business days."
Steven Sheldon, CFA and principal with SMS Capital Management, says that the SEC ban and the government's plan have removed the panic from the market for the short term, which is a positive, but that risks still remain.
"A few days ago we were headed toward something cataclysmic," says Sheldon. "At least, for the moment, that's off the table. But once the dust settles Monday, we'll be back looking at fundamentals. The pendulum will swing back towards the negative before this is all over."
Indeed, uncertainty still looms over credit and financial markets.
fate is still undecided, while
still is shopping itself to all bidders. By Monday, there is a chance that both or neither will be independent any longer.
"Nothing is out of the realm of possibility," Nolte says. "Last Monday, Lehman was gone and Merrill got the bum-rush into Bank Of America's arms. It's going to be very hard to tell who the winners and losers are going to be. It's hard to get your arms around whether this is enough or if this is the solution. We have no idea for six months to a year until this has a chance to work it's way through the financial system."
Investors are hoping for more clarification on the economy when Fed Chairman Ben Bernanke makes three separate appearances on Capitol Hill to discuss the U.S. financial markets, his economic outlook and the recent Treasury and federal housing and finance agency bailout of government-sponsored enterprises
Bernanke will appear before the Committee on Banking, Housing, and Urban Affairs in the U.S. Senate on Tuesday, the Joint Economic Committee on Wednesday, and the Committee on Financial Services in the House of Representatives on Thursday.
In addition to Bernanke's testimony, the backend of the week is loaded with economic data, starting Wednesday with a report on existing home sales. The consensus among economists is that sales in August fell to 4.93 million annualized units from 5 million the month prior.
"The home sales numbers are going to be the ones people focus in on, because that's still the root of all evil at this point," says Nolte. "Any type of news, especially good news, will be welcome."
Thursday brings three separate reports on durable goods orders for August, weekly initial jobless claims, and new home sales for August. Durable goods orders are expected to have declined 1.3% last month, while new home sales are expected to have increased slightly to 518,000 units from 515,000 units.
On Friday, the highlight of the economic docket is the final read on second-quarter gross domestic product, which is expected to increase a bit to 3.4% from the last reading, which was 3.3%. The University of Michigan's consumer sentiment index for September will also come due.
In addition to the two housing-related economic reports, a couple of homebuilders will be out with quarterly earnings results during the week.
is set to report Tuesday, with analysts expecting the company to post a loss that narrowed from a year ago, and
will release results Friday.
Among the tech companies set to report earnings this week, the spotlight will shine brightest on
Research In Motion
when it posts quarterly results after Thursday's close.
are all also set to deliver results.
Several retailers are also set to report quarterly results, including
Bed Bath & Beyond
Monday will also bring a change to the Dow's makeup, when
replaces component AIG, leaving the index underweighted in financials following the recent turmoil in the stock market. The move marks the second time in 2008 changes have been made to the Dow's component list.