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VOL. 123 | NO. 221 | Tuesday, November 11, 2008

Wall Street Turns to Consumers To Gauge Economy

By JOE BEL BRUNO | AP Business Writer

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NEW YORK (AP) – Wall Street heads into another turbulent week with investors set to pore over a government report on retail sales and earnings from Wal-Mart Stores Inc. to get a better reading on consumers.

There are growing signs that the deepening economic slowdown has caused Americans to tighten their purse strings. There was fresh evidence of this past week when retailers posted the worst October same-store sales in 35 years – and analysts said they believe the coming holiday shopping season could be among the slowest in decades.

With consumer spending driving more than two-thirds of the U.S. economy, investors will be paying close attention to earnings outlooks for some of the nation’s biggest retailers. Wal-Mart, the nation’s biggest retail chain, will post results on Thursday. Kohl’s Corp., JCPenney Co., Macy’s Inc., and Abercrombie & Fitch Co. are scheduled to release reports as well.

Investors will get an overall picture of consumer spending Friday when the U.S. Commerce Department releases its October retail sales index. The closely watched gauge is expected to show sales dropping 1.2 percent for the month after falling 1.2 percent in September. Excluding the battered automobile industry, sales are expected to have fallen 0.9 percent.

The market, still trying to recover from October’s devastating losses, will likely zigzag as investors react to these reports. This has been the pattern during the past few weeks, with major indexes swinging from one extreme to another in capricious trading.

Many analysts have said this volatility is part of a bottoming-out process. The real test is to see in the coming days if investors have already priced in the potential for negative news or if fear of a protracted recession will trigger another stream of selling.

“The news is going to be really bad, and that shouldn’t be a surprise to investors,” said Peter Cohan, principal of Peter S. Cohan & Associates. “But, I’m feeling uncomfortable that the market is a daily mood ring for the economy. The small investors are largely out of the market, and what you end up with is a small number of very large players making decisions.”

Cohan pins the volatility on hedge funds, pension funds and big university endowments unloading stocks to raise collateral and scooping up undervalued stocks to seize opportunity. He believes this will eventually result in a more stable trading environment that will lure retail investors back and add stability to major indexes.

Hedge funds could come to center stage this week if they receive another wave of redemption requests from investors. The Nov. 15 deadline for redemptions could cause further instability in the market, Cohan said.

Wall Street had enjoyed its biggest Election Day rally in history last Tuesday, but could not cling to those gains. This was followed by a two-day loss of about 10 percent in the major indexes, including a 929-point drop in the Dow, as investors turned their focus once more to the economy’s woes.

For the week, the Dow Jones industrial average and broader benchmarks such as the Standard & Poor’s 500 index lost about 4 percent after surging 10 percent or more the week before. Technical analysts are keeping a close eye on all the data this week, with continued concerns that the Dow will test its Oct. 10 intraday low of 7,882.51.

Stock futures trading early Sunday evening showed a slightly positive start for the markets. S&P 500 futures gained 0.83 percent, while Nasdaq 100 futures rose 0.66 percent.

There are a number of other reports on tap that might give more insight into the economy. On Thursday, Wall Street gets readings on the labor market and trade deficit, followed by a look at consumer sentiment Friday. Trading on Tuesday could be more subdued with the bond market and some banks closed for Veterans Day.

Additionally, investors are watching for developments with General Motors Corp., Chrysler and Ford Motor Co. after the automakers met with Congressional leaders last week to secure financial help.

Democratic leaders in Congress asked the Bush administration Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs as sales have dropped to their lowest level in a quarter-century. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.

“We must safeguard the interests of American taxpayers, protect the hundreds of thousands of automobile workers and retirees, stop the erosion of our manufacturing base, and bolster our economy,” Pelosi, D-Calif., and Reid, D-Nev., wrote.

President-elect Barack Obama might generate even more news out of Washington with the possible selection of a new Treasury secretary. He has already identified that the economy is the new administration’s biggest priority, and a Treasury pick could lift stocks.

Among those being considered for the post include former Treasury Secretary Lawrence Summers, Federal Reserve Bank of New York President Timothy Geithner, and former Federal Reserve Chairman Paul Volcker.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 57 307 5,073
MORTGAGES 101 483 6,709
FORECLOSURE NOTICES 22 77 1,556
BUILDING PERMITS 0 720 11,979
BANKRUPTCIES 84 341 5,300
BUSINESS LICENSES 36 125 2,061
UTILITY CONNECTIONS 152 594 7,058
MARRIAGE LICENSES 36 117 1,458

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