NEW YORK (CNNfn) - Traders will return to Wall Street this week with the cold comfort that things can't get too much worse.|
Last week, the Dow Jones industrial average suffered its worst week since the end of the Great Depression and its fourth-worst week of all time, dropping a record 1,369.70 points, or 14.26 percent, to finish at 8,235.81.
The S&P 500 narrowly avoided its worst week ever, falling 127.54 points, or 11.6 percent, to finish at 965.03. The Nasdaq had its third-worst week ever, falling 272.11 points, or 16.1 percent, to end the week at 1,423.19.
"As horrendous as it looks, I'm beginning to feel we're not that far from a bottom," David Blitzer, chief investment strategist at Standard & Poor's, told CNNfn's Street Sweep program.
The problem is finding that bottom. Stock markets hate uncertainty, and there's a lot of uncertainty in the wake of the terror attacks on Sept. 11 that destroyed the World Trade Center, damaged the Pentagon, and killed thousands of people.
President Bush has declared a war on terrorism, but investors don't yet know who all the opponents are, or what the scale of the war will be.
"We're seeing a lack of buying, as people are reluctant to establish new positions in a climate of social unrest," Maureen McCarthy, head of equity trading at Robertson Stephens, told CNNfn's Money Gang program.
Also uncertain is the state of the U.S. economy. Many economists now expect a recession this year, as consumer confidence sags under the weight of the attacks and hundreds of thousands of job cuts made during a year-long economic slowdown. How long and deep that recession will be is now the question.
"The stock market will remain depressed until layoffs stabilize and the resolution of the war on terrorism becomes clearer," said Sung Won Sohn, chief economist at Wells Fargo & Co.
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Unfortunately, most economic data due this week reflect conditions before the attacks. Of such backward-looking numbers, possibly the most interesting will be the government's latest estimate of second-quarter gross domestic product (GDP), due Friday.
GDP grew at a rate of just 0.2 percent in the second quarter, and that number could be revised into negative territory, which would increase the possibility of a recession, commonly defined as two consecutive quarters of negative GDP.
But more important will be September consumer confidence figures from the Conference Board, a private research group, due Tuesday, and a revision of a consumer sentiment index by the University of Michigan, due Friday.
Economists are worried that consumer spending will sag in the wake of the terror attacks, and confidence was already flagging after a year-long economic slowdown led to hundreds of thousands of job cuts. Consumer spending fuels two-thirds of the economy and has kept it out of a recession during the downturn.
"The severity of the downturn still hinges on the fate of consumers," said Salomon Smith Barney economist Robert DiClemente.
Still, many economists expect eight interest-rate cuts by the Federal Reserve, combined with billions of dollars in expected fiscal stimuli by the Congress and President Bush, to provide a boost to the economy by 2002, and stock market rallies usually precede economic recoveries.
"This market is grossly oversold," said Peter Cardillo, director of research at Westfalia Investments. "There has been a lot of stimulus added to the economy, so somewhere along the line a recovery will take place."
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Though few companies will actually report earnings this week, several are likely to issue warnings that their quarterly results will miss Wall Street expectations, especially in light of the attacks.
Among the handful of companies reporting this week, Lehman Brothers (LEH: Research, Estimates) is scheduled to report third-quarter earnings on Tuesday. Lehman and other brokerage firms have suffered the most from the economic downturn, which has been accompanied by a bear market and reduced trading.
Though bad news and emotions have ruled the markets this week, many analysts were encouraging investors to take a longer view of things.
"We need a mind shift to looking beyond the valley to the peaks ahead," said Al Goldman, director of technical market analysis at A.G. Edwards. "We have to look at the history of the nation after it's faced other horrible disasters. We always come back bigger and better."