Wall Street's eyes on the consumer
This week, investors eye Wal-Mart and AIG earnings, the retail sales report and the latest for the Big Three automakers
NEW YORK (CNNMoney.com) -- As the market lurches into what is likely to be another herky-jerky week, all eyes are on the consumer.
Battered by the housing market slump, credit crisis and subsequent recession, consumers have been tightening their purse strings. This week will bring more details on just how reserved they've become.
Aside from Wal-Mart, retailers are preparing for what could be a grim holiday season. At the same time, corporations across all industries are shedding jobs and Detroit's Big Three automakers are struggling to stay afloat.
"We're just getting wave after wave of bad news," said Dave Hinnenkamp, CEO at KDV Wealth Management. "And with the way the consumer is getting hit, the retail sales report (Friday) is going to be ugly."
He said in the short-term, investors are also waiting to see if the automakers get help. General Motors, Chrysler and Ford met with Congressional leaders last week, seeking financial assistance.
Those meetings came just ahead of miserable financial reports from both GM (GM, Fortune 500) and Ford (F, Fortune 500). With auto sales at their weakest in more than two decades, a report released last week showed that if any of the Big Three fail it could cost the economy up to three million jobs and $60 billion in the first year alone. Saturday, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent a letter to Treasury Secretary Henry Paulson, asking the Bush administration to consider expanding the $700 billion bailout to include car companies.
The first half of the week is light on economic news, with the bond market and some banks closed on Tuesday due to Veterans Day. Reports later in the week will give some insight into the labor market, the trade deficit, retail sales and consumer sentiment.
Thursday brings the release of the U.S. Labor Department's latest weekly jobless claims report, expected to show a continued increase in the number of Americans filing new claims for unemployment. Of greater interest will be the report's continuing claims tally. Last week, the number of Americans continuing to collect unemployment benefits hit a 25-year high of 3,843,000.
Thursday also brings the release of the Commerce Department's report on the September trade deficit, expected to show a decline for the second month in a row as the weak economy eats into demand for oil and other imports. Oil prices have been slumping lately, even with OPEC cutting output, as the sluggish economy takes a toll on global demand.
The deficit is expected to have narrowed to $56.6 billion from $59.1 billion in August, according to economists.
Friday brings the release of the Commerce Department's October retail sales index, expected to show another monthly decline as hard-hit consumers continue to pull back on spending.
October retail sales were abysmal, according to the monthly sales figures released last week from the nation's chains. Overall October sales were the worst in at least eight years, with only discounters such as Wal-Mart escaping the pull of the recession.
The government's report is expected to show retail sales dropping 1.2% in October after falling 1.2% in September. Sales excluding volatile auto sales are expected to have dipped 0.9% after falling 0.6% in September.
Friday also brings reports on business inventories, import and export prices and consumer sentiment.
Corporate financials: With 84% of the S&P 500 having released results, earnings are on track to have fallen 13.9% from a year ago, according to the latest Thomson Reuters figures.
Former Dow component AIG (AIG, Fortune 500) reports quarterly results bright and early Monday morning. The insurer is expected to report a loss of 90 cents per share versus a profit of $1.44 a year ago, according to a consensus of analysts surveyed by Thomson Reuters.
AIG narrowly avoided filing for bankruptcy in September thanks to an $85 billion bridge loan from the Federal Reserve. The central bank later said it would loan the company additional funds. AIG has also made use of the Fed's commercial-paper funding program. In total, the government has made about $144 billion available to the firm. Reports Friday said that the government could ease up on the terms of the loan, with an announcement expected shortly.
On Thursday morning, Wal-Mart Stores (WMT, Fortune 500) is expected to post a quarterly profit of 76 cents per share versus a profit of 69 cents per share a year ago. Wal-Mart is one of the few retailers that has managed to hold up well despite the consumer spending slowdown. Last week, the company reported that sales at its stores open a year or more rose 2.4% in October, topping its own forecast for a 1% to 2% increase for the month.
Federal Reserve speakers: Vice Chairman Donald Kohn and Chairman Ben Bernanke speak at events in Europe this week. Investors will be listening to see if the two officials provide any insight on future U.S. or global monetary policy developments.
Donald Kohn speaks at 11 a.m. ET Wednesday at a central bank event in Luxembourg. His topic is productivity and innovation in financial services.
Chairman Ben Bernanke speaks at 8:30 a.m. ET Friday at a central banking conference in Germany. His topic is policy coordination among central banks.
The week also brings a pair of House of Representatives hearings - one on mortgage modifications on Wednesday and one on Hedge fund regulation Thursday.
Stocks slipped last week as the early-week euphoria surrounding President-elect Barack Obama's historic victory gave way to renewed fears about the depth of the recession.
The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all lost around 4% last week.
On Wednesday and Thursday, the Dow lost nearly 10%, its worst two-day percentage decline in 21 years.
The week brought stark signs of the recession, with sluggish reports on manufacturing, factory orders, retail sales, automaker sales and especially the labor market.
Friday's report showed employers cut 240,000 jobs from their payrolls in October, the 10th straight month of losses. That brought the number of job losses in 2008 so far to 1.2 million. The unemployment rate, generated by a separate survey, surged to 6.5%. Both figures were worse than Wall Street had expected.
Corporate news brought no relief. Cisco Systems (CSCO, Fortune 500) cut its forecast and froze hiring. A number of companies announced job cuts, including Circuit City (CC, Fortune 500), Fidelity, Mattel (MAT, Fortune 500), Hartford Financial Group (HIG, Fortune 500).
GM reported a steep quarterly loss and said it's running out of cash. Ford Motor reported a big loss and said it is cutting 2,600 jobs. GM, Ford and privately-owned Chrysler met with congressional leaders Thursday to discuss a potential government bailout. In a letter to Paulson Saturday, Pelosi and Reid asked the administration to provide more aid to U.S. carmakers.
"We must safeguard the interests of American taxpayers, protect the hundreds of thousands of automobile workers and retirees, stop the erosion of our manufacturing base, and bolster our economy," Pelosi, D-Calif., and Reid, D-Nev., wrote.
Stocks, as represented by the S&P 500, shot up 18% in the seven trading sessions through Election Day, bouncing off a 35% slump in the six weeks before.
"The rally was was a perfect bear market bounce, a total fakeout," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
He said that stocks are going to get hit again amid the next wave of hedge fund redemptions, which will cause increased selling.
Many hedge fund investors can withdraw money on Dec. 31 and some funds require a 45-day notice, which means requests will need to be in by the end of next week. Managers have been selling billions of dollars in securities in anticipation of the requests. Managers are also trying to raise cash to meet the demand of their lenders.
Some of the selling in September and October was as a result of higher-than-expected redemption requests to funds that require a 60- or 90-day notice.
"I think the mutual funds did a majority of their selling into the end of October, but the hedge funds are going to be selling a lot more."
Did you vote for Obama? How do you think the new president will affect your wallet? What do you think Obama needs to do to fix the economy - both in the short run and the long term? What should be first on the new Congress's agenda? E-mail us your thoughts, including your name, photo and contact info; the best answers will be featured in an upcoming CNNMoney.com article. 
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