As the market swung back and forth last week, with no apparent regard for logic, some investors were left scratching their heads, asking: What gives?
The coming week may be more of the same, with reports on jobless claims, pending home sales, consumer credit and exports having good potential to roil stocks further if anything unexpected comes up -- as might a potential
On Friday alone, the Dow Jones Industrial Average plunged over 150 points following a surprisingly bad
, then rallied to close up nearly 33 points.
As always, ever-fluctuating sentiment about oil prices, and what they say about the broader global economy, also affected the Dow and could lead to more earthquakes next week. Drops in oil prices were first considered welcome relief amid concerns that inflation would spiral out of control. This week, lower oil was seen as just another indication that demand is slowing.
"You can look at the glass any way you want -- half full, half empty," says Robert Johnson, associate director for economic analysis at
. "But clearly, if oil prices continue to go down, people are going to be saying it's a problem and we're nearing recession."
Johnson notes that the dramatic drop in oil futures -- from a high of more than $147.27 per barrel in July to Friday's close of $106.23 -- will have an effect not only on inflation, like the producer price index to be released next Friday, but also on trade data, as the U.S. pays less for imports of the commodity.
Bob Auer, portfolio manager of the Auer Growth Fund, has found that a 1% change in the price of oil futures has recently correlated to twice as much of a change in related equities. Sometimes, he says, non-related equities have fluctuated in tandem as well.
"There will be more blind volatility, because I think people don't really know what's going on," says Auer. Though he predicts the market will end up on an oversell technical bounce, it "could be taking some pretty big swings depending on what comes out -- it could just go into total jubilation or it could totally freak out."
A report in the
Wall Street Journal
on Friday that the Treasury is prepared to announce a plan to rescue mortgage giants Fannie and Freddie could help financial and housing stocks or destroy them further -- depending on terms of the deal.
Few major companies are expected to report earnings -- the meager list includes
on Friday, however, shows that we have officially entered the confession period, when companies start telling the market to brace itself for weak results.
"Next week is probably going to be a pretty tough week," says Johnson. "If we're going to get anything, it's going to be somebody pre-releasing something bad."
There is potential good news out of
, which is expected to unveil a revamp of its iPod music players on Tuesday.
Another important factor next week will be the initial jobless claims report set for release on Thursday. Such data have been consistently been above 400,000 claims in recent months, which in the past has been an indication of a recession or economic downturn. Some economists speculate that a government extension of unemployment benefits has created inflated figures. Still, all eyes will be on the report after eight straight months of job declines, as a gauge for how bad the economy has gotten and how much worse it might get.
"Given the bad monthly jobs report that came out
Friday, people will be looking at it even closer," says Johnson.
Retail sales figures set to be released Friday should have minimal impact, since most major retailers reported monthly statistics already. Consumer sentiment may also have little effect, with a possible negative effect of a contracting job market offset by the positivity of lower fuel prices. However, Vinny Catalano, chief investment strategist at Blue Marble Research, says consumer credit report to be released Monday should not be overlooked, since it will provide evidence of how much Americans are relying on credit to finance their lifestyles.
"When you're looking at the U.S. economy, No. 1 is the U.S. consumer," says Catalano. "It's the big dog and you need to know what the big dog is eating."
The pending home sales report slated for Tuesday will also provide evidence of the health of the consumer, and whether home prices have dropped far enough for a housing-market rebound. Trade data to be released Tuesday might also provide a lift, as a historically weak dollar has allowed exports to help prop up the economy as consumers get back on their feet.
Whatever occurs in the market next week, investors can find opportunities in incredibly depressed share prices of companies with strong fundamentals, says Alan Gayle, senior investment strategist for RidgeWorth Capital Management. Indeed, investors hunting for cheap financial and consumer-discretionary stocks helped boost the market into positive territory on Friday afternoon.
"These are fire-sale prices, because turmoil creates opportunity," says Gayle. "And if you look at the credit markets, I think you can safely say we have turmoil."