By Deborah Levine
Stock investors will key next on earnings from tech giant Intel
Corp. and banks including J.P. Morgan for hints of what to expect
in the third quarter -- and how badly the recession hurt businesses
in the second quarter.
The Standard & Poor's 500 Index (SPX) and Dow Jones
Industrial Average (DJI) fell for a fourth consecutive week this
past week, the longest string of declines since the doldrums in
March.
Analysts expect very steep drops in earnings on a year-over-year
basis, though earnings compared to last quarter are forecast to
improve, said Binky Chadha, chief U.S. equity strategist at
Deutsche Bank. Though sequential earnings are usually not as
important because of various seasonal factors, this time around
they may be a better signal of how the broader economy -- and by
extension, the market -- will do.
Estimates of what each company will earn have been all over the
map, especially in financials and consumer discretionary names, he
said.
"A necessary condition for the markets to go up from here is
that earnings have to deliver, and we need a dissipation of the
uncertainty about earnings," Chadha said.
Still, analysts don't have very high expectations.
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market is filled with folks who want to be optimistic, but simply
cannot find enough genuine reasons to buy into the market," said
Mike Gambale, an analyst at Informa Global Markets. "We don't
expect impressive numbers across the board, but there will be some
surprises, as there always are."
On Tuesday, Intel (INTC) is expected to report second-quarter
earnings and sales plunged, but some analysts believe demand may be
returning to the battered market following a sharp slowdown in
demand for high-tech goods.
Internet-search juggernaut Google Inc. (GOOG) will report on
Thursday.
The Nasdaq Composite Index (RIXF) lost 2.2% in the week ended
Friday.
A slew of financial firms will also report next week, including
Goldman Sachs Group Inc. (GS), Bank of America Corp. (BAC) and
Citigroup Inc. (C). It's likely to be a mixed bag, with some banks
and brokerages performing very well with all the government
supports, and other still scraping by.
Analysts expect JPMorgan Chase & Co. (JPM), which reports on
Wednesday, is expected to come through the market collapse mostly
intact.
Besides each firm's own business outlook, bank earnings provide
a window into how the real estate sector is really doing and how
bad consumers' balance sheets are.
"There is a general feeling that residential housing is
stabilizing, but commercial activity is struggling," said Nick
Kalivas, equity analyst at MF Global. "Credit-card defaults are
also expected to rise, but the magnitude of increase will be
watched closely."
Another one that could give clues about the health of the
economy is rail-transportation company CSX Corp. (CSX), which
reports on Monday.
"A bottoming in the housing market or construction would suggest
a pick up in the movement of building materials," Kalivas said.
Also on the radar will be economic reports, especially the
retail sales data for June, scheduled to be released on Tuesday. A
broad swath of retailers reported worse-than-expected same-store
sales for June.
Data on wholesale and consumer prices will be released on
Tuesday and Wednesday.
Week in review
Markets have been led by a creeping realization that the
economy, in the U.S. and abroad, won't rebound as quickly or as
robustly as many had previously hoped. That was, in part,
underlined by the U.S. payrolls report on July 2 that said the
economy shed many more jobs than had been anticipated.
On Friday, stocks and oil fell while Treasurys gained after a
survey by the University of Michigan and Reuters said U.S. consumer
sentiment fell sharply in early July, in part because Americans are
still worried about what the future of the economy might hold.
Oil futures fell below $60 a barrel Friday, heading for their
biggest weekly loss in six months as an International Energy Agency
report reaffirmed concerns about weak demand as the economy remains
sluggish.
Treasurys prices advanced Friday, adding to the longest streak
of weekly yield declines since December. The yield on benchmark
10-year notes (UST10Y) fell this week to 3.29%, the lowest since
May 20.
A flight to safety also benefited the Japanese yen. Earlier in
the week, the U.S. dollar fell to its lowest level versus the
Japanese currency in five months. The dollar index (DXY) , a
measure of the greenback against a trade-weighted basket of six
major currencies, recently traded at 80.216, down about 9% from a
week earlier.