Stocks gave us a wild ride last week as numerous factors converged to incite more extreme market volatility that we had seen since the conclusion of the fiscal cliff drama at the beginning of the year. The DOW jumped over a hundred points on Friday, following two notable down days, and closed the week above the 14,000 mark again, albeit barely. The volatile trading action is likely to continue into the new trading week as budget negotiations in Washington will likely dominate headlines and keep investors on edge. Unlike the fiscal cliff talks that resulted in a last-minute deal during the dawning hours of 2013, both sides look more inclined this time around to hold their ground, which means that the potential is high that the much-discussed sequestration measures will come into effect on Friday morning. Such an even would translate into swift federal spending cuts that have the potential to negatively impact the overall economy, let alone stall the recovery.
Another event with market-moving implications to keep an eye on this week is Fed Chairman Ben Bernake's date with Congress. Much of last week's mid-week drop was attributed to statements from the Fed that stimulus measures long in place since the depths of the recession may be pulled back earlier than previously indicated and Congress on Tuesday and Wednesday will hear personally what Mr. Bernanke has to say in those regards. Friday's rebound provided some evidence last week that investors may have felt they overreacted by selling into the Fed comments last week, there's little doubt that Mr. Bernanke's comments this week will be heavily watched, especially in light of recent developments in Europe over the weekend.
Sooner or later those European concerns are likely to effect trading on this side of the pond again. With the enthusiasm of the January rally and the encouragement of this earnings season, investors easily brushed aside any concerns of a stalling global recovery, but analysts predicted last week that the European economy had at least another year of recession and turmoil on the table before reversing course and climbing into growth.
Warnings of slow growth were even apparent in the supposed powerhouse economies of Germany and England, but the light was dimmed even more when Moody's downgraded the UK's Triple-A credit rating. It's yet to be seen how much of an impact that move will have on the European or global markets, but it's an eye-opener heading into the new trading week.
Also this week, the Italian elections will be in the spotlight and it'll be a disappointing sign if Italy votes Berlusconi's 'Bunga Bunga' squad back into power, as it's time for the Italian economy to embrace the financial reforms that have been put into place since his ouster and not reverse course back into the all-too-recent past. That said, there's little doubt that the worst of the worst is in the rear view mirror for the Euro Zone (EZ) as a whole, but it's evident that the light at the end of the tunnel is still a ways off in the distance.
Bernanke's comments, US budget talks, looming sequestration and the EZ's continued strife could lead to a volatile week ahead. As is always the case, there will be plenty of individual stocks and stories to keep an eye on while the major news plays out. Here are just a few of them for the week of 25 February, 2013...