Only one week ago, market participants were wondering if
Now, bulls have carried a four-day winning streak -- one that saw the
Dow Jones Industrial Average
rally 10% -- into the weekend, and they're hoping that more good fortune will be in the cards during the coming week.
How exactly did the market go from bankruptcy watch to rally mode? Credit good news from three financial institutions, namely
Mark-to-Market, Uptick Rule
Word that the so-called
could be reinstated as well as potential forthcoming changes to mark-to-market accounting rules were also a boon for the bulls.
"The market was oversold, and we had seller exhaustion," said Michael Pento, chief economist with Delta Global Advisors. "We had a few good statements from the banking sector, and, of course, the red herring called mark-to-market and word it could be repealed gave us a nice rally."
James Paulsen, chief investment strategist with Wells Capital Management, offers a much sunnier outlook, arguing that bulls have now firmly seized control and that the market can only go up.
"This thing is bottoming, and the next big move is up," he said. "Whether that's going to be now or months from now, it'll be well worth the wait. Yes, we fell below the November lows, but that's really when the bottoming process started, and we've hung in there. Commodities and bond spreads held up. Whether the bottoming process is going to continue for much longer remains to be seen."
Market participants will also watch for any hint of changes to the fair value accounting rules. They have long complained about the Financial Accounting Standards Board's statement 157, which was implemented in 2007 to change the definition of fair value -- the measure of the worth of an asset on a company's books -- the methods used to measure fair value, and the expanded disclosures about fair value measurements.
The so-called mark-to-market rules have led to assets being priced well below their real valuation, making it impossible for banks to purge the toxic assets from their books, so any mention of change to those rules is well-received by the market.
Both mark-to-market and the uptick rule have been in the spotlight lately. During the past week, Rep.
(D., Mass.), among others, expressed support for a change to mark-to-market accounting rules as well as the uptick rule.
"The uptick rule issue is done. People expect it to be put back into place," said Wells Capital's Paulsen. "However, mark-to-market is still very much up in the air, but it is the closest to being revised since the crisis began. You have a number of significant voices that more or less have said they support some sort of modification, including
Chairman Ben Bernanke and
billionaire investor Warren Buffett."
One big catalyst for the market could be the launch of the Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF. Tom Sowanick, chief investment officer with Clearbrook Financial, asserts that the "biggest thing next week is the launch of the TALF. It will help support the current rally."
The TALF was designed to support the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration. The program could see the New York Fed bank lend up to $1 trillion.
On Friday, the New York Fed said it would extend the window for the first subscriptions for funding from the TALF by two days to March 19 to allow more time for borrowers to complete the documentation associated with the initiation of the program.
Fed Rate Watch
Investors will also need to keep a close eye on the latest Fed rate decision. The central bank will deliver its decision on interest rates on Wednesday following a two-day meeting by the Federal Open Market Committee. At the Fed's December meeting, the group established a target range for the federal funds rate of zero to 0.25% in order to combat weak economic conditions, leaving many to question what steps (if any) the Fed could take next.
Pento said that the Fed can't go below zero and the idea of it raising rates "is certainly far beyond the horizon." Additionally, he argues that Ben Bernanke has backed himself into a corner with his latest statements on interest rate policy and inflation.
In his latest testimony, Bernanke said inflation will not be a problem for years," Pento said. "If interest rates are at zero, and inflation is not going to be a problem for years, what is his next move going to be? The only thing he can do is continue the quantitative easing, which is blowing up the monetary base and expanding the balance sheet. "
Any surprises from the Fed may come out well before the interest rate decision as Bernanke is set to appear Sunday night on
program. Bernanke is set to discuss the financial crisis, the recession and how the Fed is handling it all in his interview.
Slew of Data
The economic docket is packed over the next week, with several key reports due to hit each day. Art Hogan, chief market analyst with Jefferies, said that the flurry of releases will help renew the focus on where the economy stands.
"I think that's probably a positive thing as we're seeing a pattern of news happening at a pace that's decreasing in magnitude," Hogan said.
On Monday, the February read on industrial production and capacity utilization will come due, and the New York Fed will post its Empire State manufacturing index reading for March. Tuesday will see the release of two important reports in the form of housing starts and the producer price index for February.
Wednesday will bring the consumer price index for February, along with the current account balance for the fourth quarter. The final day of the week will bring the weekly jobless claims data, leading economic indicators for February as well as the Philadelphia Fed's latest read on manufacturing activity.
"It's not like anyone is expecting the data to be good," said Paulsen. "But if it starts to show some sort of slowing of the rate of decent, or even if it's miserable data but still better-than-expected, it will help continue the move higher. That's the importance of next week."
The earnings calendar is very thin over the next five sessions, with specialty retailers accounting for most of the quarterly reports.
are all out with results during the week.
One last note that market observers offer up is the fact that Friday represents not only options expiration day, which usually indicates more volatility than usual, but it is also the first quadruple witching day of 2009. By definition, quadruple witching occurs when contracts for stock index futures, stock index options, stock options and single stock futures all expire.
"Coming into this last week, the shorts were winning," said Sowanick. "We could see a further upside squeeze next Friday. I think it can add to surprises."
Hogan, though, offers one final optimistic note for the coming week. "Even if we peel a little off of these gains, it's important to note that we can continue a rally for a sustained period of time and for a large percentage gain," he said.