Wall Street's broken rally

A seven-month advance came to a halt in October as investors turned cautious. Can November recharge the run?

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By Alexandra Twin, CNNMoney.com senior writer

An eyeblink glance at the economy
The economy has grown for five straight quarters, but there are signs that the recovery is still fragile.
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NEW YORK (CNNMoney) -- Last week's big selloff did more than just rattle investors: it put an end to a seven-month win streak that had pushed the S&P 500 more than 60% above the March lows.

While the monthly decline was small -- less than 2% -- it emerged after a tumultuous week dictated by a stronger dollar, sliding energy and financial issues, and a variety of quarterly financial reports. A stronger-than-expected rise in third-quarter GDP growth -- the strongest sign yet that the recession is over -- provoked a one-day rally and nothing more.

"The underlying fundamentals look good," said David Chalupnik, head of equities at First American Funds. "But there's still a lot of worry in this market, which we saw this week."

He said the week ahead should be better, but it may be muted as investors wait for Friday's big jobs report.

"Right now the market is all about jobs and the consumer," said Kelli Hill, portfolio manager at Ashfield Capital Partners. "While GDP is growing, the consumer is hurting."

Weak consumer confidence, sluggish spending and the still-deteriorating labor market are all creating worries about what a recovery will look like beyond the near term. Government stimulus programs such as Cash for Clunkers and the tax breaks for first-time home buyers have helped, but are short term fixes. Investors are concerned about what a recovery will look like without the help.

"There's growth and resilience in productivity, but people are still losing their jobs," she said.

Jobs: The state of the labor market moves front and center on Wall Street in the week ahead, with a number of reports on joblessness in October on tap. The government's non-farm payrolls report on Friday is likely the highlight.

Employers are expected to have cut 166,000 from their payrolls after cutting 263,000 in September, according to a consensus of economists surveyed by Briefing.com. The unemployment rate is expected to drift ever closer to 10%, hitting 9.9%.

On Wednesday, the Senate is expected to vote to extend unemployment benefits.

Other economic events to keep an eye on during the week include October auto and truck sales, due Tuesday, and the weekly jobless claims and October chain store sales, both due Thursday. For a more detailed look at this week's economic news, see the chart.

Federal Reserve: The central bank meets Tuesday and Wednesday with a decision on interest rates and a statement due out Wednesday afternoon. The Fed is widely expected to hold the fed funds rate, a key overnight bank lending rate, at historic lows near zero, as a means of supporting a still-tentative economic recovery.

In its closely watched statement, the Fed could provide hints as to when, later this year or early next, it plans to start removing the trillions in stimulus it put into the system as the financial crisis took hold. The bankers are not expected to lift interest rates until sometime next year.

Quarterly results: With roughly 344 companies, or 69% of the S&P 500 having reported results, profits are currently on track to have fallen 17.5% versus a year ago, according to Thomson Reuters.

That makes the third quarter the ninth consecutive quarter of declining profits, the longest stretch since Thomson began calculating the information a decade ago.

However, the percentage of companies reporting upside surprises is at an all-time high of 80%, with just 6% meeting forecasts and 13% missing forecasts.

Revenue is currently on track to have fallen about 10.7% versus a year ago.

The week brings a smaller number of market-moving quarterly results, including Dow components Cisco Systems (CSCO, Fortune 500) and Kraft Foods (KFT, Fortune 500).

Ford Motor (F, Fortune 500), due out Monday morning, is expected to have lost 13 cents per share, after losing $1.31 a year ago, according to Thomson Reuters estimates.

Kraft Foods, due out after the close Tuesday, is expected to have earned 48 cents per share, versus 44 cents a year ago.

Time Warner (TWX, Fortune 500) reports results Wednesday morning. The media company (and parent of CNNMoney.com) is expected to have earned 53 cents a share versus 30 cents a year ago.

Cisco Systems, due out after the close Wednesday, is expected to have earned 31 cents per share, down from 42 cents a year ago.

CIT: One cloud hanging over the markets to start the week is the bankruptcy filing of CIT Group (CIT, Fortune 500), one of the leading providers of funding for small and medium-sized business. The company said it has already worked out a reorganization plan with bondholders that it expects to speed the Chapter 11 process and reduce CIT's debt by $10 billion.

But the filing means that common and preferred shareholders, which include the federal government to the tune of $2.3 billion in Troubled Asset Relief Program funds, will be wiped out. To top of page

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