Does Wall Street have another wild week ahead?
Investors head into the new trading week a lot less fearful and a lot less poorer – but still a bit on edge -- after the stock market recouped most of its big losses with a strong rebound rally Friday that capped off another turbulent week on Wall Street.
And while it's impossible to play down the potential headline risk that is still out there, markets this week will instead be focusing on a fresh batch of incoming profit reports from U.S. companies and a rash of new economic data, ranging from sales of new and existing homes last month to the September reading on consumer inflation.
After disappointing retail sales helped roil markets last week, economists expect less turbulence from this week's economic data. Analysts estimate that existing home sales rose modestly in September after slipping the previous month and that new home sales moderated after surging to a 6 1/2-year high in August. Meanwhile, inflation is projected to show just a slight rise last month after declining in August as gasoline prices continued to drift downward.
"The U.S. economy remains strong despite weak global growth," Barclays Capital wrote in a research note. Chief U.S. economist Dean Maki added that falling gasoline prices should boost consumer spending and economic growth this year.
High-profile companies reporting earnings this week include iPad maker Apple and computer giant IBM on Monday; fast-food giant McDonald's and soft-drink seller Coca-Cola on Tuesday; automaker General Motors on Wednesday; heavy equipment maker Caterpillar and online retailer Amazon.com on Thursday; and Ford Motor and consumer staples behemoth Procter & Gamble on Friday.
The stock market, which for most of last week was trading on fear and emotion in the face of wild stock price gyrations set in motion by a global growth scare and panicky reactions to the Ebola virus scare, showed signs of stabilization Friday. The Dow rallied 263 points to trim its weekly loss to 1%, leaving it down 5.2% from its Sept. record high.
On the upside, a Wall Street "fear gauge" is also heading back down after fear doubled since the end of September to its highest level in three years. And crude oil prices, which had plunged more than 20% before bottoming out around $80 earlier last week, has suddenly found a bid as well.
The market's violent swings the past two weeks "felt worse than it is," mainly because traders had grown unaccustomed to them, says Russ Koesterich, chief investment strategist at Blackrock.
"I still think you can get massive market swings, but I don't think this is the start of something more dire," says Koesterich, adding that he doesn't think the slowdown in Europe is a "precursor to a global recession."
He adds that Ebola is "incredibly hard to handicap" so you have a "lingering black swan out there."
David Bechtel, money manager at Barrow Funds, says there is potential for more roller coaster days on Wall Street but says the volatility "creates opportunities for level-headed people to put money to work."
He's been buying some of his favorite names, including defensive-type stocks such as tobacco giant Altria and chicken producer Pilgrims Pride, viewing them as "bargains" after they got walloped like the rest of the market in the recent downdraft.
Asked if a bear market is looming?
Bechtel responded: "I think that might be stretching things."
Contributing: Paul Davidson