Final Week of February May Prove Challenging on Wall Street

During the coming week Federal Reserve Chairman Ben Bernanke will be heading to Washington DC to present his report on the state of the US economy and monetary policy, addressing the House Financial Services Committee on Wednesday, following up with an appearance before the Senate Banking Committee on Friday. Washington DC is also the host for lawmakers who will be meeting to discuss various aspects of the Toyota recall, as well and addressing issues related to the Treasury budget and the health of financial institutions in the US. The conclusions reached with regard to the latter will determine whether more government intervention is needed.

Investors were not anticipating last week’s increase in the discount rate by the Federal Reserve to 0.75 percent, being a quarter percentage point rise. This move triggered a sell-off as investors speculated whether this increase meant that the Fed may be looking at raising the Fed funds rate, which is currently near zero, thereby impacting on consumer and company costs. However, these fears were allayed by Fed officials.

Tuesday sees the release of the December S&P/Case-Shiller index which measures home prices in twenty cities. It is anticipated that this will reflect a drop of 3.1 percent, following the 5.3 percent drop in November. The Conference Board’s Consumer Confidence Index is also due out on Tuesday, while the FDIC will release quarterly industry earnings, along with its list identifying banks considered to be vulnerable. Due on Wednesday is the government’s report on new home sales for January, which is expected to have risen slightly.

Thursday kicks off with the US weekly jobless claims report, with new unemployment claims likely to have dropped to 460,000 from the previous week’s 472,000. However, it is anticipated that continuing claims will have increased to 4,570,000. Other reports due out on Thursday include the durable goods orders index for January from the Commerce Department, and the Federal Housing Finance Agency housing price index. Having been a contentious issue for some time now, observers on both Wall Street and Main Street will no doubt be interested in the outcome of the financial-industry executive compensation hearing to be held by the House Financial Services Committee. On Friday, the revised reading on consumer sentiment will be released by the University of Michigan, while the National Association of Realtors will make their report available in the morning session of trade.