Investors expect volatility as credit woes persist

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(Agencies)
Updated: 2008-10-06 09:44

"You're going to have a lot of volatility and we're going to get a whole lot of nowhere in the next few weeks," said Frank Ingarra, co-portfolio manager at Hennessy Funds.

Investors will be straining to see how the Treasury goes about purchasing banks' debt and what prices the unwanted assets might fetch. If the government pays too little it risks sending more banks into failure by depleting their asset bases. But paying too much could artificially strengthen banks that made bad decisions in lending and hurt taxpayers.

"I think it's a little bit more 'show me' than 'tell me' here," Ingarra said, referring to investors' desire to see proof that the debt causing the lockup in the credit markets is being absorbed.

Still, he contends the US government rescue ultimately will help unclog the credit markets.

"I think the bailout is huge. It will help us and help to mitigate the recession that we're in or going to be in," he said.

But even if the government's hand can reanimate the credit markets, investors will still face tough questions about everything from consumer spending and unemployment to the still-struggling housing sector.

On Tuesday, Fed Chairman Ben Bernanke is scheduled to speak on the prospects for the economy and the financial markets. Heads of other Fed banks are slated to comment on the crisis in speeches throughout the week. Investors can be expected to pore over the remarks for any signs of the central bank's next move and indications of how the credit markets and economy are faring.

The Labor Department's weekly report on jobless claims, due Thursday, will draw particularly close attention following Friday's report that employers shed jobs in September for the ninth straight month.

Beyond economic figures, quarterly results are due from Yum Brands Inc., the parent of KFC, Taco Bell and Pizza Hut, as well as grocery chain Safeway Stores Inc. and conglomerate General Electric Co.

Investors also might pause to recount the turmoil that has shaken the markets in the past year. Thursday marks the one-year anniversary of the stock market's peak. On Oct. 9, 2007, the Dow Jones industrial average finished at 14,164.53. The blue chips begin the week down 27 percent last week from that level, at 10,352.38.

More important than stocks, the credit markets where many companies turn for cash loans to finance a range of operations, remained strained Friday even after the bill became law. Demand for safe-haven investments like Treasury bills remains high, illustrating the fear in the markets.

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