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Coming Week: Waiting for Rescue

The market's direction will hinge largely on whether Congress can figure out a plan to fix this mess. Economic data and a handful of earnings reports also will be factors.

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


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.

"I really hope this is another Sunday-night surprise," Pavlik says, referring to the recent rash of drastic end-of-the-weekend changes at financial companies. Three weeks ago,

Fannie Mae



Freddie Mac


were offered a bailout over the weekend, which many hoped would mark the end of the turmoil in financial markets.

However, the next weekend saw

Lehman Brothers'

collapse and

Bank of America's

(BAC) - Get Free Report

surprising acquisition


Merrill Lynch



One week later,

Goldman Sachs

(GS) - Get Free Report


Morgan Stanley

(MS) - Get Free Report

became bank holding companies, effectively ending the age of

large, independent investment banks

on Wall Street.

Aside from the Sunday-night surprises, plenty else has changed.


(AIG) - Get Free Report

received an emergency

$85 billion loan

from the

Federal Reserve

, while

Washington Mutual

(WM) - Get Free Report



by federal regulators and sold to

JPMorgan Chase

(JPM) - Get Free Report


Hogan says that if Sunday passes without an announcement from Congress, the financial market will be under tremendous pressure. "The longer we wait, we come dangerously close to the collapse of the financial system," he says. "Not to sound too doom-and-gloom, but we were there last week. The only reason we didn't fall into the abyss was because a rescue plan was presented."

While trying to remain optimistic about the rescue plan, market participants are also eyeing another deadline. Just over a week ago, the

Securities and Exchange Commission



in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." That ban ends Thursday, but many hope the SEC will extend it.

"I wouldn't be surprised at all to see that ban extended," says Sheldon, "given the tremendous uncertainty and volatility that has been taking place in financial markets."

Traders this week will be watching headlines outside the financial sector as well, including a slew of economic data. Friday the Labor Department will post the September nonfarm payrolls report, which is expected to show that the U.S. economy lost 90,000 jobs. One of the report's key components, the unemployment rate, should remain at 6.1%.

"We've already lost over 600,000 jobs this year alone," says Pavlik. "The total number of unemployed people rose in August to 9.4 million. That is a boatload of people. How many Rose Bowls would that fill?"

Also on the economic docket, the latest report on personal income and spending arrives Monday, and the Chicago Purchasing Managers' Index and consumer confidence reports arrive Tuesday.

Wednesday, the Institute for Supply Management will release its September data. Also Wednesday, investors will get auto and truck sales data for September and construction-spending data for August. On Thursday, traders will get the August report on factory orders and weekly initial jobless claims.

While the economic calendar is filled to the brim, the earnings roster is light for the next five sessions.

Circuit City

(CC) - Get Free Report




are due to report quarterly results Monday, and

Pepsi Bottling


will report Tuesday.


(MU) - Get Free Report




are on Wednesday's schedule, and Thursday's highlights will be


(MAR) - Get Free Report


Constellation Brands

(STZ) - Get Free Report

. Friday's lone earnings highlight will be

Family Dollar