The stock market is trying to form a bottom, but the economic landscape keeps changing.
With the Treasury switching its financial bailout plans and Congress fighting over a potential rescue package for automakers, investors are having a tough time figuring out what the future will bring. And that will probably mean more wild swings in the market this week.
"These are tremendous dollops of uncertainty, one after the other," said Quincy Krosby, chief investment strategist for Hartford Financial Services Group Inc. "A market needs confidence that things are going to get better. And right now there is a marked, marked lack of confidence that things are going to get better."
The result of this bewilderment is that every rally is subsequently met with selling. Last week's sell-off wiped out about $800 billion in shareholder wealth, according to the Dow Jones Wilshire 5,000 index, which reflects the value of nearly all U.S. stocks.
The Dow Jones industrial average finished the week down 5% despite a 552-point surge Thursday; the Standard & Poor's 500 index sank 6.2%, and the Nasdaq composite index plunged 7.9%.
Hedge fund and mutual fund selling has been contributing to the market volatility as funds respond to redemptions -- calls from investors for their money back. Saturday was the deadline for redemptions at many hedge funds by those who want their money back by Jan. 1, but investors are not yet anticipating an end to large-scale fund selling.
But there are fundamental factors, too, behind the market's volatility, and a big one is the government's change in strategy over how to fix the weak economy and strained financial system. Without knowing what actions the government is going to take, investors cannot assess the severity of the economic downturn and price that into the market.
Last week, Treasury Secretary Henry M. Paulson said the $700-billion financial bailout money would no longer be used to buy troubled banks' toxic assets as originally planned and instead would go toward buying stakes in the banks and other rescue efforts.
And over the weekend, after House Speaker Nancy Pelosi (D-San Francisco) said the House would provide $25 billion in aid to General Motors Corp., Ford Motor Co. and Chrysler, top Republican senators said they opposed the plan. Congress will discuss the issue in a session this week.
