Week ahead: Weathering bad news

Get ready for economic news and financial results from Home Depot and other stores. Congress will debate the future of the automakers.

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By Alexandra Twin, CNNMoney.com senior writer

What should Congress do for U.S. automakers?
  • Lend them money
  • Do nothing
  • Lend them money but kick out current execs

NEW YORK (CNNMoney.com) -- Investors returning to work Monday face what is expected to be a weeklong display of the depth of the downturn - a torrent of bad economic news.

With stocks down roughly 35% year-to-date - as measured by the Dow 30 - has Wall Street already factored in the worst?

Some market pros think so.

"What kind of surprise can there be on the downside?" said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "We already know the worst. The only surprise would be some good news."

Still, stocks are likely to bounce around.

"This recession is consumer led, and it is likely to feel worse for the typical consumer than anything we've felt since World War II," said Jane Caron, chief economic strategist at Dwight Asset Management. "I don't think investors have fully grasped the severity of it yet," she said.

The week ahead will be a good litmus test of investor fortitude as Wall Street looks at what will probably be one dour economic report after another.

Both the New York Empire State index and the Philadelphia Fed index are expected to show manufacturing falling deeper into a recession. Reports on housing and leading economic indicators are forecast to show declines. And the minutes from the last Fed meeting are likely to show the central bank's concerns when it cut interest rates last month.

All of these reports could send stocks lower. But there is also the potential for an upside surprise, particularly as the market seems to be in the process of putting a bear market bottom in place, said Mendelsohn.

Last week, the major gauges slumped to levels not seen in roughly 5-1/2 years, hitting a point some consider to represent the lows of the current bear market. After hitting those lows on Thursday, stocks bounced back sharply as investors opted to scoop up beaten-down shares. But Friday was another down day, as investors reacted to the worst monthly retail sales report on record.

Economy

Monday: The NY Empire State index, a regional manufacturing report, is expected to slump to negative 26 in November from negative 24.6 last month. Any negative reading shows weakness.

Tuesday: The Producer Price Index (PPI), a measure of wholesale inflation, is expected to have fallen 1.5% in October after falling 0.4% in the previous month. Core PPI, which strips out volatile food and energy prices, is expected to have risen 0.2% after rising 0.4% in the previous month.

Wednesday: The Consumer Price Index (CPI), a measure of consumer inflation, is expected to have fallen 0.8% versus a flat reading in September. October Core CPI, which excludes volatile food and energy prices, is expected to have risen 0.2% after edging up 0.1% in the previous month.

Housing starts are expected to have fallen to an annual rate of 780,000 in October from a 17-year low of 817,000 in September. Building permits are expected to have stumbled to an annual rate of 770,000 in October from a rate of 805,000 in October.

Wednesday also brings the release of the minutes from the last Federal Reserve policy meeting in October.

Thursday: The October index of leading economic indicators (LEI) is expected to have dropped 0.6% after rising 0.3% in September.

Also Thursday, the Philadelphia Fed index, a regional manufacturing report, is expected to have improved slightly to a reading of negative 30 in November from negative 37.5 in October.

Corporate financials

A number of retailers report results this week, including rivals Lowe's and Home Depot. All forecasts are according to a consensus of analysts surveyed by Thomson Reuters.

Monday: Lowe's (LOW, Fortune 500) is expected to report earnings of 28 cents per share, versus 38 cents a share a year ago. Target (TGT, Fortune 500) is expected to have earned 49 cents per share versus 56 cents a share a year ago. Both reports are due before the opening bell.

Tuesday: Home Depot (HD, Fortune 500) is expected to have earned 39 cents per share versus 59 cents a share a year ago. The report is due before the opening bell.

Thursday: Dell (DELL, Fortune 500) is expected to have earned 32 cents per share versus 34 cents a share a year ago. Gap (GPS, Fortune 500) is expected to have earned 34 cents per share versus 30 cents a share a year ago. Both report after the closing bell.

Speakers and hearings

Congress reconvenes, with several hearings scheduled for the week. A number of Federal Reserve and Bush administration officials are also due to speak.

Monday: Treasury Secretary Henry Paulson is slated to speak at 6:30 p.m. ET about the economy and the markets at the Wall Street Journal CEO council in Washington, D.C.

Tuesday: The House Financial Services Committee holds a hearing regarding oversight of the $700 billion bank bailout plan. Paulson, Fed Chairman Ben Bernanke and FDIC Chairman Sheila Bair are among the speakers.

Wednesday: The House Financial Services Committee holds a hearing on a potential bailout package for the flailing auto industry. Senate Banking Committee head Sen. Christopher Dodd, D-Conn., is also holding a hearing on the automaker bailout Tuesday, he told CNNMoney.com.

Also Wednesday, Federal Reserve Vice Chairman Donald Kohn and Bank of Richmond President Jeffrey Lacker speak at a conference at the Cato Institute in Washington, D.C. The topic is lessons from the subprime crisis. Lacker is an alternate member of the Fed's policy-setting committee.

Thursday: Paulson speaks about the economy at the Reagan Library in Simi Valley, Calif. To top of page

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