More selling will knock Wall Street stocks lower this week if economic data, offers more signs that the US economy is on the brink of recession.
Trading is likely to be volatile as several Fed officials speak on economy, monetary issues
NEW YORK: More selling will knock Wall Street stocks lower this week if economic data, including a key report on February payrolls, offers more signs that the US economy is on the brink of recession.
With a full slate of Federal Reserve officials, including Fed Chairman Ben Bernanke, due to speak on the economy and monetary issues through the week, volatility could be the rule.
Strikingly weak economic figures, including reports on Friday that suggested consumer spending has ground to a halt and another showing consumer sentiment sank to a 16-year low in February, have heightened recession fears.
If there is any solace in the coming week for Wall Street, analysts say it would have to come from the slew of economic reports on tap, including readings on the manufacturing and the vast services sector.
“This market is extremely hypersensitive to economic news, good and bad,” said George Yared, founder and chief investment officer at Yared Investment Research in Wayzata, Minnesota. “Anything that doesn’t have a minus on it will be good news for the market,” he said.
While investors may try to shrug off bad news in the hope that a spate of Fed interest-rate cuts will ease the drag of the housing slump, any optimism will fade quickly if signs point to further credit losses for the sector.
Progress in efforts to stabilise bond insurers, who face the threat of credit ratings downgrades, is also seen as critical for the financial sector. Its impact could further harm the banking sector and fuel more write-downs for mortgage-related losses.
On Friday, CNBC television reported that a bailout plan for Ambac Financial Group Inc had hit a snag. Moody’s Investors Service also said ratings on the insurance arm of Ambac Financial Group remain on review for a possible downgrade and the insurer is around $2 billion short of its “target” capital level for an ‘’AAA’’-rated company.
“There could be more shoes to drop” in terms of financials, said Russell Croft, portfolio manager at Croft Funds Corp in Baltimore, Maryland. “Stability is what we’d like to see. If the unemployment numbers can stay pretty down ... we really think it will help get us back in shape going forward,” he said.
In trading on Friday, the Dow Jones industrial average slid 315.79 points, or 2.51%, to end at 12,266.39. The Standard & Poor’s 500 Index fell 36.96 points, or 2.70%, to 1,330.72 while the Nasdaq Composite Index closed down 60.09 points, or 2.58%, to end at 2,271.48.
On Monday, investors will watch for the Institute for Supply Management’s (ISM) February reading on manufacturing, followed on Wednesday by the services sector ISM for last month, January factory orders.
Also on Wednesday, investors will comb through a private employment survey due for release by ADP Employer Services. The government’s closely-watched employment report for February is scheduled for release on Friday.
January pending home sales are due for release on Thursday, along with weekly jobless claims. Factory orders and the non-manufacturing ISM survey “will give us an idea of how high the inflation levels have gone overall and the probabilities of further rate cut,” said Joe Kinahan, chief derivatives strategist at online brokerage firm thinkorswim Inc in Chicago.
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