US stocks brace for a whipsaw week

WHAT should be a holiday lull of a week looks set to be anything but, with Wall Street on high alert for the latest twists and turns in the credit crisis, more volatility in commodity prices and key developments in the race for the White House. Fallout from the credit crisis continues to plague markets, with investors increasingly believing in the likelihood of a federal bailout of home-funding giants Fannie Mae and Freddie Mac. Some market watchers expect the Federal Reserve and US Treasury Secretary Henry Paulson to take action as early as this weekend. Lehman Brothers will also remain firmly in the spotlight, after state-run Korea Development Bank said on Friday that the US investment bank was one of its options for acquisitions. That announcement came a day after veteran bank analyst Dick Bove said Lehman could become a target of a hostile takeover. Financials aside, the sharp and frequent turnarounds in the direction of the price of oil have played a key role in the market’s daily fortunes. Mounting geopolitical tensions between the West and Russia and any economic data showing slowing global growth could tug oil either way. The US presidential campaign also will take a more central role, with Republican John McCain and Democrat Barack Obama set to reveal their vice presidential running mates and the Democratic Party’s national convention in Denver. Investors will look for how Wall Streetfriendly the vice presidential picks are, analysts said. “There are a lot of cross-currents here. You’ve got oil, financials and politics coming together, and it’s hard to see that combining in a way that’s a perfect storm to the downside or a perfect environment to the upside,” said Jeffrey Kleintop, chief market strategist at LPL Financial Services in Boston. All these cross-currents come in the week before the Labor Day holiday, and analysts said the low trading volume could exacerbate swings in the major stock indexes. “I think it’s important that the week ahead is the last week in August and so whatever happens, we should take it with a grain of salt,” said Linda Duessel, market strategist at Federated Investors in Pittsburgh. For the week ended August 22, the Dow Jones industrial average dipped 0.3%, while the Standard & Poor’s 500 Index declined 0.5%, and the Nasdaq Composite Index lost 1.5%. Housing will be a dominant theme at the beginning of the week, with July existing home sales on Monday, followed on Tuesday by the S&P Case-Shiller home price index and new home sales for July. Consumer confidence data on Tuesday, plus consumer sentiment and personal income data on Friday could give the market more clues about the health of consumer spending and the economy as the boost from tax-rebate checks wanes, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. The personal income data includes the Fed’s preferred inflation gauge. Preliminary real GDP data is expected to show second-quarter growth at an annual rate of of 2.7%, compared with 1.9% in the first quarter.