NEW YORK - With little question the U.S. is in the grips of a recession, investors this week will lean on a stream of earnings and economic reports to help determine exactly how prolonged and painful the downturn might be.
There's certainly been fresh evidence the credit market has begun to thaw. But, that alone might not be enough to restore confidence in the stock market at a time when investors are clamoring for stronger signs of a bottom.
Trying to predict a floor for major U.S. stock market indexes has proven to be a difficult task. Wall Street ended a volatile two-week run fairly stable on Friday, and there were indications that bank-to-bank lending rates eased and that some companies returned to the bond market to raise cash.
Those indicators might have previously been enough to reassure anxious investors that the worst is over for the stock market. However, amid a financial crisis not seen for decades, analysts still remain cautious.
"If you can survive the whiplash of this bottom formation, then stocks look ridiculously cheap," said Edward Yardeni, president and market analyst at Yardeni Research. "But, there are bigger questions. Investors still want to see the light of day in this credit crisis, and they want to know if the current recession will be relatively short and shallow."
He said the biggest question facing Wall Street is whether the stock market's current levels have priced in all the pain that goes along with a recession. Indexes could slip even further if the market is sideswiped by a disappointing batch of economic news or dour corporate reports.
Sunday evening, stock index futures signaled a slightly higher open. Dow Jones industrial average futures rose 54, or 0.61 percent, to 8,825. Standard & Poor's 500 futures rose 7.30, or 0.78 percent, to 940.50; while Nasdaq-100 futures rose 7.00, or 0.53 percent, to 1,318.
It was impossible to tell whether the market would hold at those levels by the time trading resumes Monday. Markets in Asia and Europe could set the tone for the start of the week in the U.S., and any news developments before the opening bell on Wall Street will ultimately determine how U.S. stocks fare.
Monday coincidentally is the anniversary of the first trading day after the 1987 stock market crash known as "Black Monday." The Dow plunged 22.6 percent that day to mark the largest one-session percentage decline ever.
The blue chip index that tracks 30 of America's biggest companies will begin trading Monday at the 8,852.22 level, down a stunning 37.5 percent from its record closing high of 14,164.53 set Oct. 9, 2007. Analysts remain mixed over whether the roller-coaster trading of recent weeks is a sign of capitulation, a Wall Street term that indicates a sense of despair among investors that's a perquisite to a rebound.
The last time Wall Street reached such a cathartic level was during the last bear market, when the Dow fell 37.8 percent from a close of 11,722.98 on Jan. 14, 2000, to 7,286.27 on Oct. 9, 2002. However, then investors didn't have to worry about a recession blocking a rebound.
Jack Ablin, chief investment officer at Harris Private Bank, said the biggest signs that a bottom has formed will be how investors react to bad news this coming week. He believes investors have engaged in "slash and burn selling" with all the news converging at once, and a change in that pattern will be telling.
"I think the bad economic data and earnings are already priced in to an extent," he said. "What I'm looking for is a disconnect with investors where bad economic news or a bad earnings report is greeted by a rally, that will be telling about which direction we're heading."
Ablin points out that earnings reports and economic data are mostly backward looking, and in most cases reflect conditions before the meltdown hit its peak in the past few months. He's interested in what chief executives have to say about their companies going forward.
The consensus among many analysts is that companies will begin to curtail their projections for the fourth quarter because of deteriorating growth. There have been a number of reports already out from companies like Google Inc. and Honeywell International Inc. that overall have not been as bad as feared.
This week, a larger breadth of America's business community are set to release results. Among them are Dow components' AT&T Inc., Caterpillar Inc., 3M Co., Boeing Co., Microsoft Corp., and McDonald's Corp. Others include Amazon.com Inc., UPS Inc., and Altria Group Inc.
Economic reports this week include September's index of leading U.S. economic indicators on Monday. Other big reports include Thursday's weekly U.S. jobless claims and Friday's report on existing home sales.
Investors might also get a better idea about what Federal Reserve Chairman Ben Bernanke thinks about the credit and stock markets. He is scheduled to testify at a house Budget Committee hearing about the economy and financial markets.
"All of this could extend the extraordinary volatility we've been seeing," Yardeni said. "But, some would say that's actually a sign we're making a bottom, as painful as it is."