NEW YORK: Wall Street's enthusiasm for President-elect Barack Obama may come full circle this week as he prepares to take office and help to offset what many expect will be a barrage of bleak corporate earnings reports.
In the week leading up to his Jan 20 inauguration, US stocks will face another trying period beset with more disappointing economic data and the start of the first-quarter earnings season.
But a glimmer of hope for stocks could come from signs that US Congress is heeding his call for an urgent and large stimulus package, after his warning that the economy could slip further into recession and unemployment could climb to double digits.
"We're now turning towards this fiscal stimulus package as potentially our last hope and saviour because there's no indication that monetary policy can any longer break the cycle," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.
Wall Street started 2009 on a sour note, logging its worst week since late November. Global heavyweights Wal-Mart Stores Inc, Intel Corp and Chevron all lowered their earnings estimates, heightening fears of the deepening recession amid expectations earnings will fall.
The focal point was a government report released last Friday that showed the US jobless rate jumped to 7.2%, its highest level in nearly 16 years.
The Dow Jones industrial average ended down 143.28 points, or 1.64%, to 8,599.18. The Standard & Poor's 500 Index slid 19.38 points, or 2.13%, to 890.35. The Nasdaq Composite Index fell 45.42 points, or 2.81%, to 1,571.59.
Friday's unemployment data served as a "stark reminder" of the need to move quickly on the massive economic package, Obama said Friday.
Although there is broad consensus among Democrats and Republicans that bold steps are required to address the economy's struggles, some lawmakers have expressed concerns that the stimulus bill would widen the already soaring US budget deficit.
In coming days, Wall Street will eye the unfolding drama surrounding the stimulus bill, and parse his statements for specific details and figures about his proposed plan, which would combine tax cuts with aid to states and public works projects.
"The kind of details would be what is the split between tax cuts and spending?" said John Praveen, chief investment strategist at Prudential International Investments in Newark, New Jersey. "How soon will it begin to have an impact?"
Those details "are exactly what I think he has to clarify," said Carl Birkelbach, head of Birkelbach Management in Chicago. "He may do that this week and that will help."
Birkelbach said he expected another uptick in stocks this week due in part on rising optimism about Obama's efforts to jumpstart the world's largest economy.
There is precedent for that -- Wall Street enjoyed its biggest Election Day rally ever when Obama won the presidency on Nov 4. And in the week before his election, stocks rallied as well.
Stocks have made strides since scraping their Nov 20 low with the broad S&P 500 index up roughly 20%. Still, year-to-date the Dow is down more than 2%, while the broad S&P 500 is off 1.4% and the Nasdaq is 0.3% lower. These figures point to the fact that highlights the wobbly nature of the US economy.
Another set of preannouncements this week and reams of expected economic data will likely add to anxieties about the market, which is down nearly 43% since its October 2007 record high.
Alcoa and Intel will report earnings this week, but investors will be watching out for fresh earnings revisions, in particular from big banks that will begin posting earnings the week after.
Economic data on tap for this week includes the latest reading of the Producer Price Index on Thursday and the Consumer Price Index on Friday, which investors -- rattled by fears of deflation -- will watch closely.
After major retailers posted disappointing sales last week, the government's report on December retail sales is expected to show a decline of 1.2% during one of the worst holiday shopping seasons in recent memory.
Other key economic indicators are industrial production figures, consumer sentiment data and the Federal Reserve's beige book, a series of anecdotes illustrating the state of the US economy.
"We know the economy is very, very bad and the unemployment numbers are going to be bad," said Praveen.
But if figures are well below expectations, "it creates more uncertainty about how deep the recession is going to be," he said. "It unleashes a whole new set of uncertainties." - Reuters
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