The market suffered one of its worst one-week performances since the fall of 2008 last week as concerns about the economy took back center stage. Investors had been fretting about the economic outlook all summer long. But it got spooked by the apparent downgrade to the Fed’s growth outlook in the post-FOMC meeting statement last week. Data showing a slowing trend in China’s manufacturing sector added to these growth fears, with the unresolved debt situation in Europe playing a constant destabilizing role.
We did not get any fresh negative reports on the European situation over the weekend, which could be construed as a positive in the current environment. And a bunch of economic reports this week will provide further color on the U.S. economy.
The most significant of the reports this week are Durable Goods on Wednesday and the Personal Income & Spending report on Friday. Of the regional manufacturing reads, Friday’s Chicago PMI will give us the best preview for the October ISM report coming out next week, though today’s Dallas Fed and Friday’s Kansas City Fed reports will also shed light on that. Tuesday’s consumer confidence and Friday’s consumer sentiment reports will give a good sense of the consumer.
With the third quarter reporting season still a couple of weeks away, the market will continue to reflect the macro questions. These pertain to the growth outlook for the U.S. and China and the evolving European fiscal crisis. Answers to these critical macro questions will determine how the market performs over the coming months.
In corporate news, Eastman Kodak (EK) will be in the spotlight as doubts rise over the company’s financial position. The company drew down $160 million from its revolving credit facility on Friday after the market close. The trading scandal at UBS (UBS) prompted the surprise resignation of its CEO over the weekend, creating fresh uncertainties about the Swiss banking giant.
Following last week’s heavy losses, stocks will likely start the new week on a positive note given the absence of any unsettling news from Europe and the relatively thin domestic economic calendar.
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