Wall St Week Ahead: GM, banks' fate to keep investors on edge

NEW YORK (Reuters) - With stocks mired in multi-year lows and the fate of General Motors and banks hanging in the balance, investors are unlikely to curb their flight from risk this week, putting Wall Street on track for another brutal sell-off.
One focal point will be a meeting between the U.S. auto task force and GM (NYSE:GM - News), Chrysler and officials from the United Auto Workers in Detroit this week after auditors raised doubts about GM's ability to survive outside bankruptcy.

Uncertainty over the plan to salvage banks will also hang over the struggling sector until more concrete details from Washington are revealed, leaving investors to fret that companies that were once pillars of the financial system will have to be nationalized.
The weak economy will likely be confirmed by a handful of economic reports, including a government report on February retail sales and a survey of consumer sentiment.
"There are, unfortunately, no guideposts to a lot of the market to allow investors to get a better sense of direction of where the market is going, where corporate America is going," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
"Short of that, we're going to likely have to rely on Washington. Unfortunately, it just seems like Washington's relationship with the stock market is strained."

"PAINFUL" MARKET
With the Dow and S&P trading at 12-year lows, and the Nasdaq sliding to six-year lows, market watchers will be looking for signs of whether a bottom has been found, or if indexes still have another leg down to go.
Last week was the fourth week of declines for all three major U.S. stock indexes, as the Dow Jones industrial average (DJI:^DJI - News) dropped 6.2 percent and the Nasdaq composite index (Nasdaq:^IXIC - News) fell 6.1 percent. The Standard & Poor's 500 (^SPX - News) slid 7 percent, its worst week since November.
"I've been in the business since 1963 and I've truthfully never seen a market that is so discouraging or painful," said Carl Birkelbach, chief executive officer of Birkelbach Investment Securities in Chicago.
"I've been through a lot, but this is the worst I've seen."

The Wall Street Journal reported on Friday that about $50 billion of more than $173 billion of U.S. government bailout money poured into American International Group Inc (NYSE:AIG - News) has been paid to at least 24 financial institutions around the world.
Already cheap bank stocks continued their tumble last week. The stock price of Dow component Citigroup (NYSE:C - News), once the world's most valuable bank by market capitalization, fell under $1 for the first time, reigniting anxiety over the bank's health and that of the entire banking sector.
Clarity on how toxic assets will be cleared off banks' balance sheets and how those assets will be valued is key to stabilizing the financial sector and seeing markets manage a sustainable recovery, analysts said.
"In order to move forward, we need (Treasury Secretary) Geithner to come out and tell us the answer to the question: 'How do you value the assets?'," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.
"We may be happy about it, we may not be happy about it, but at least we'll know."
Members of the U.S. autos task force will visit Detroit this week to meet with GM, Chrysler and officials from the United Auto Workers labor union, an official for the Obama administration said on Friday.
GM's failure could trigger round of massive layoffs and hurt companies that supply and manufacture parts, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York.
In all, GM's bankruptcy could lop off 4 percentage points from the U.S. gross domestic product, of which two-thirds is driven by consumer spending, LaVorgna said.

CONSUMER PSYCHOLOGY 101

Ahead of the Fed's policy-making meeting the following week, Federal Reserve Chairman Ben Bernanke is set to address the Council on Foreign Relations on Tuesday. Investors will be watching for any comments on the state of the economy and the outlook for banks.
Economic data on February retail sales on Thursday and a preliminary reading on March consumer sentiment on Friday, coupled with quarterly results from office supplies and electronics retailer Staples Inc (NasdaqGS:SPLS - News) on Wednesday, should give a gauge of consumer spending. January's international trade deficit report is due on Friday.
Economists polled by Reuters forecast that retail sales will slip 0.5 percent in February, after January's unexpected gain of 1 percent. They forecast a preliminary March reading on consumer sentiment of 55.0, down from 56.3 for February, from the Reuters/University of Michigan Surveys of Consumers. The international trade deficit is forecast to drop to $38.1 billion in January from $39.93 billion in December.
Last week, U.S. retailers posted better-than-expected same-store sales for February, helped by a strong gain at Wal-Mart (NYSE:WMT - News), the world's largest retailer and the leading U.S. discount chain. But analysts cautioned that stores will have to show consistent improvement for expectations of weakness to change.


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A look at the week ahead for Wall Street

With little in the way of earnings or market-moving economic news on tap this week, stocks will continue to take a cue from the financial sector as investors try to see if the latest levels can hold.
There's been such a tremendous selloff in the financial sector and in some of the retailers, that at some point even traders who are betting on a weak market are going to want to get in, said Fred Dickson, chief market strategist at D.A. Davidson & Co.

And the mild reaction to a dismal jobs report last Friday could suggest that the time is nearing.

"How much lower can Citigroup go when it's down around a buck?," asked Dickson, adding, "We're starting to get to the point where the risk of a big upside in the market is greater than the risk of a bigger downside."
With the Dow and S&P 500 both down more than 50% off their October 2007 highs, a decent bounce is not hard to imagine, said Gary Hager, president of Integrated Wealth Management.
He said that the pent-up demand is equivalent to shoppers pressing against the door of a store that is about to open for a sale, but the shoppers wont' budge until the first few jump in. Once they start moving, the rest will follow.

Ripe for a bear market rally. In both October and November of 2008, the stock market stabilized at levels that many market pros were betting could be the bottom, before ultimately declining further. That could be the case now as well, Dickson said. But he also said that some of what he has been seeing lately is reminiscent of the way Wall Street ultimately stabilized during the last bear market, bottoming between October 2002 and March 2003.
Dickson noted that the number of New York Stock Exchange stocks making new lows has dropped dramatically with each so-called "bottom," in October, November and now. As such, that could indicate a stabilization.
Also, from a contrarian perspective, stocks are ripe for a bounce. The American Association of Individual Investors (AAII) said 70.3% of investors surveyed were bearish, as of Wednesday. That's the highest level since the index was created in 1987.

The bearish sentiment index has been hovering between 39 and 55 over the past two months, but then last week suddenly jumped to 70.3, said Cara Scatizzi, associate financial analyst at AAII.
In tune with the bearish tone, investors pulled billions out of equity mutual funds last week. According to the latest report from Trim Tabs, investors pulled $29.9 billion out of stocks in the week ended March 4, versus an outflow of $18 billion in the previous week.

The question is what might help soothe the market and even trigger a bear-market rally. So far, most of the government initiatives announced have failed to provide the spark, including the $787 billion stimulus plan, Treasury's "stress tests" for banks and President Obama's $3.6 trillion 2010 budget.
Dickson said that indications over the next month that Congress is going to chip away at some of the spending in the budget could help, while Hager said the suspension of the mark-to-market accounting rule would help.
On the docket
Tuesday: The January wholesale inventories report is due shortly after the market opens. Inventories are expected to have fallen 1% after dropping 1.4% in December.
In Washington, the Senate Energy Committee holds a hearing on offshore drilling. On Thursday, the same committee discusses transmission lines.
Wednesday: The government's weekly crude inventories report is due out at 10:30 a.m. ET, as well as the February Treasury budget at 2 p.m. ET.
In Washington, the congressional oversight panel is due to release a report on the oversight of the Troubled Asset Relief Program (TARP), a.k.a. the bank bailout plan.

Thursday: February retail sales are due before the start of trade from the Commerce Dept. Sales are expected to have fallen 0.4% after rising 1% in the previous month. Sales excluding volatile autos are expected to have fallen 0.2% after rising 0.9% in January.
The government's weekly jobless claims report is also due in the morning. 640,000 Americans are expected to have filed new claims for unemployment versus 639,000 in the previous week. Weekly claims hit a 26-year high of 667,000 in February. The number of Americans continuing to stay on unemployment is expected to remain near record levels of 5,112,000.

The January business inventories report is due for release after the start of trading. Inventories are expected to have fallen 1.1% after dropping 1.3% in the previous month.
In Washington, a House Financial Services sub-committee debates mark-to-market (MTM) accounting, a rule that critics say has exacerbated the credit crisis. MTM requires banks to report the value of their investments if they sold them now, even though some of those assets - like mortgage-backed securities - have tumbled dramatically.
Friday: The January trade balance, due before the start of trading, is expected to have widened to $38.2 billion from $39.9 billion in December.
Also due are reports on February import and export prices and the initial March consumer sentiment index from the University of Michigan.


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