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 Wall Street hit a few snags last week: the tools in the Federal Reserve's arsenal look as if they may not be sufficient to battle the credit crisis, and inflation appears to be accelerating, which could prevent further rate cuts.
Last week, the Dow ended 2.10 percent lower, the Standard & Poor's 500 index finished down 2.44 percent, and the Nasdaq composite index ended down 2.60 percent.
Goldman Sachs reports its fourth-quarter results on Tuesday, Morgan Stanley reports on Wednesday and Bear Stearns reports on Thursday. Wall Street anticipates Goldman to have performed well this quarter, as it did in the third quarter, but expects big credit losses to hurt Morgan Stanley and Bear Stearns.
In other earnings this week, Best Buy Co., Hovnanian Enterprises Inc. and Palm Inc. report on Tuesday; General Mills Inc. reports on Wednesday; Discover Financial Services, ConAgra Foods and Research in Motion Ltd. report on Thursday; and Circuit City Stores Inc. and Walgreen Co. report on Friday.
Early in the week, Wall Street will get snapshots of the housing market. The National Association of Home Builders on Monday releases its December housing index, which economists are expecting to hold at November's reading of 19, and the Commerce Department reports Tuesday on November housing starts and building permits, which economists predict will dip compared to October.
On Thursday, the Commerce Department releases its final reading on third-quarter gross domestic product. Economists are anticipating GDP to come in at 4.9 percent, as estimated last month; however, they are less optimistic about growth in the quarters to come.
BlackRock Inc.'s chief investment officer Bob Doll and BlackRock president Rob Kapito said in a research note that further rate cuts by the Fed are necessary to bolster the economy.
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 "Our expectation has been, and remains, that the U.S. economy will avoid a recession, but the call is a close one, since we expect growth over the next few quarters to be well below the economy's long-term potential," they wrote.
The main drag on the economy has been, of course, the housing market, but the question remains how much further it has to fall.
Citigroup chief economist Lewis Alexander said he believes the housing market will remain weak well into 2008, but that it is more likely that the economy will keep growing than head into recession. Housing slumps of this magnitude in the past have led to recession, but he said this situation is different
-- unemployment remains relatively low, and consumer spending, while weakening, has not dropped too sharply.
In previous housing downturns, "the macro economy drove housing, not the other way around," Alexander said, noting that the current situation is more a housing bubble "that's correcting on its own."
Late in the week will be the Labor Department's report on personal income and spending in November, which will also include the Fed's preferred inflation measure: the core personal consumption expenditures deflator. Core PCE is expected to show year-over-year growth of 1.9 percent
-- within the Fed's comfort range of 1 percent to 2 percent.
Anything above that range could worry investors; last week, the consumer price index spiked and elevated jitters that the Fed might not be able to lower rates further because of accelerating inflation.
[Associated Press; By MADLEN READ]
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