Brace for Impact: Market Headed Down
"Brace for impact." These were the words of Captain "Sully" Sullenberger, the heroic pilot of the plane that splashed down safely in the Hudson River, but these same words might also be echoing a few blocks away on Wall Street this week. The downed US Airways plane is believed to have experienced a double bird strike that killed both of its engines leaving it without the power needed to stay aloft. The stock market may be facing its own double bird strike this week with bad news expected on several fronts likely to send stocks into another tailspin.
A flock of economic indicators are due to be released this week. Earnings reports are due from more than a quarter of all S&P 500 companies among others. McDonald's restaurant chain did fairly well with their last report, and they may be one of the few positive reports this time around. It's much harder to see how financials like Wells Fargo and American Express, capital equipment companies like Caterpillar, or companies whose income is based on ad revenue, like Yahoo, could have experienced anything short of disastrous fourth quarters. Not only will this week likely see fourth quarter results that are disappointing to say the least, but expect many of the companies' fourth quarter reports to include warnings about their earnings outlook for the entire year of 2009 as well. That's the first bird strike.
Also looming this week are the housing and the GDP reports. Most expect to see the GDP has contracted by more than 5% in the fourth quarter compared to the same period a year ago. That's a pretty big hit and is evidence that the economic engines are no longer keeping us aloft. Brace for impact. The GDP report will come on the heels of the housing report which is due out Monday. If you've been trying to sell your home, you already know how that's going to turn out.
Midweek, the Federal Reserve is expected to make an interest rate announcement, but don't look for any relief there. With rates about hovering around zero percent, there is no more birdshot left for the Fed to fire.
The only relief in sight is the new president's economic stimulus plan. The hope is that with a multi-pronged approach, the package can spur consumer spending and create new jobs to reverse the rise in unemployment. Unfortunately, according to a report in The New York Times, House Minority Leader Boehner and Senator John McCain are gearing up to oppose the urgently needed stimulus bill. Any attempts to derail or significantly delay the bill may compound the effects of this week's market news.
In short, the market is going to be under tremendous downward pressure this week; brace for impact.
Author: Brad Sylvester
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