Aid hopes may fuel optimism

L.A. Times Archives

Dec. 8, 2008 12 AM PT

Associated Press

Wall Street heads into another turbulent week Monday with Congress still hammering out a bailout for automakers and investors digesting more data likely to show the economic malaise deepening.

Investors received no respite from worries about the economy over the weekend, with President-elect Barack Obama declaring Sunday that the situation is destined to get worse before it gets better. Major U.S. stock indexes fell last week after a series of economic reports left little indication that the recession was easing.

Chief among investors’ economic worries during the next few days will be the fate of Ford Motor Co., General Motors Corp. and Chrysler. The three automakers are seeking $15 billion in short-term aid from Washington to stave off bankruptcies that would lead to a flood of job losses.

The aid might come in exchange for the resignations of top executives. Sen. Chris Dodd, a Connecticut Democrat who chairs the Banking Committee, said Sunday that Rick Wagoner, GM’s chief executive, “has to move on.” He also said Chrysler should give up its independence and be acquired by another company.

But the negative news might not actually send stocks plunging this week. There’s a growing sense that disappointing corporate reports and economic data might give the government incentive to aid Detroit and lead to lower interest rates and even a new stimulus package.

Thomas J. Lee, a stock analyst at JPMorgan, said Wall Street already had factored in much of the negative news about the faltering economy and sluggish corporate profits. On Friday, the Dow Jones industrial average gained 259 points despite a Labor Department report that showed the nation lost more than half a million jobs last month.

“You’re not going to have another big jobs report until January,” Lee said. “Everything now is more or less confirming what we already know.”

There will be no shortage of data this week. The Labor Department will issue its weekly report on unemployment Thursday, and the number of first-time claims is likely to be above 500,000 for a fourth straight week.

The Commerce Department will follow on Friday with its report on retail sales, a closely watched gauge considering that consumer spending drives more than two-thirds of the U.S. economy. The government is expected to report that sales fell in November for a fifth straight month, despite a surge of shoppers over Thanksgiving weekend.

Other economic reports include the University of Michigan’s consumer sentiment index and the Labor Department’s producer price index.

The market has been able to claim a victory of sorts when it comes to absorbing negative economic news. Except for a 680-point drop in the Dow last Monday, stocks have repeatedly overcome bleak economic and corporate data.

Any advance in stocks would be seen as a sign that stability is returning to Wall Street. Friday’s gain was the eighth for the Dow in 10 sessions, but stocks still finished lower for the week.

The Dow fell 2.2%, the Standard & Poor’s 500 index lost 2.3% and the Nasdaq composite index shed 1.7%.

The next few weeks also might shed more light on how companies are faring during the fourth quarter, and that could trigger big market swings. In preparing to report fourth-quarter results in January, many companies might issue warnings about their results.

Last week, a number of companies -- including Merck & Co. and DuPont -- trimmed guidance for what is expected to be another gloomy quarter.

Other warnings might come this week. Results are expected from H&R; Block Inc., AutoZone Inc., Kroger Co. and Costco Wholesale Corp.

Investors also will start to look for signs about losses that financial companies such as Goldman Sachs Group Inc. and Morgan Stanley might report.

Ryan Larson, head of equity trading at Voyageur Asset Management, said many on Wall Street were keeping a close eye on financial stocks to help gauge any recovery for the market and the economy. For instance, Hartford Financial Services Group Inc. raised its full-year operating profit forecast and said the capital outlook at its insurance units was strong.

“The longer we can go without banks continuing to need to raise capital every single day, that’s going to be a good thing,” Larson said.

While some companies continue to tough out a brutal economy, others might turn toward deal-making to weather the recession. There was speculation over the weekend that Deutsche Boerse, which runs the stock exchange in Frankfurt, Germany, was in talks with NYSE Euronext about a possible deal.

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At a glance

TODAY

Treasury auction.

Senate Agriculture, Nutrition and Forestry Committee hearing on food assistance programs for children during the economic downturn.

Quarterly results due from H&R; Block.

TUESDAY

House Oversight and Government Reform Committee hearing on the collapse of mortgage companies Fannie Mae and Freddie Mac.

National Assn. of Realtors releases pending home sales index for October.

Quarterly reports due from SAIC, AutoZone and Kroger.

WEDNESDAY

Treasury Department releases federal budget update for November.