Wall Street awaits consumer reports

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 the consumer.

There are signs that Americans have snapped wallets shut in the midst of the deepening economic slowdown. There was fresh evidence of that last week when retailers posted the worst October same-store sales in 35 years.

On top of that, analysts believe the upcoming 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., J.C. Penney Co., Macy's Inc., and Abercrombie & Fitch Co. are scheduled to release reports this week as well.

Investors will get an overall picture of consumer spending on Friday when the Commerce Department releases its October retail sales index. The closely watched gauge is expected to show sales dropped 1.2 percent in October after falling 1.2 percent in September. When the battered automobile industry is excluded, 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 stock and bond indexes swinging from one extreme to another in capricious trading.

Many analysts believe 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 while 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.

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 focused again on the economy's woes.