Earnings Optimism May Beat Out Rate Fears
U.S. stocks might gain more steam this week with the trickle of corporate earnings results set to become a flood and Wall Street encouraged by expectations for a rosy reporting period. For now, that optimism could even overshadow lingering uncertainty about the interest rate picture, analysts say, as the markets await a key speech from the Federal Reserve’s top official and data on consumer inflation. With the corporate confession season, when companies come clean about their ability to meet earnings estimates, safely past, robust second-quarter results from many sectors are likely to put Wall Street in a good mood, analysts said. A number of high-tech heavyweights are slated to release higher second-quarter corporate earnings this week, among them chip maker Intel Corp. and computer giant IBM Corp. Sun Microsystems, America Online and Apple Computer will also be issuing quarterly results this week. Microsoft Corp., the world’s No. 1 software maker, which is reporting fourth-quarter results Tuesday, is expected to have earned $2.4 billion, or 42 cents a share, on revenue of $5.8 billion, according to 24 analysts polled by First Call/Thomson Financial.
Meanwhile, banks and brokerages are expected to show a slowdown in second-quarter profits this week, squeezed by the recent slump in U.S. equities and by rising credit costs. The list includes Merrill Lynch, PaineWebber Group Inc. and investment bank Donaldson Lufkin & Jenrette, which report earnings on a calendar quarter basis. Coca-Cola Co., the world’s largest soft-drink company and numbering among the 30 stocks in the Dow, will also issue second-quarter results. Several other blue chips are set to issue their corporate scorecards this week, including Johnson & Johnson, Philip Morris, Boeing, Caterpillar, General Motors, Bank of America and UAL.
On Thursday, investors will be hanging on the words of Federal Reserve Chairman Alan Greenspan, when he is due to testify on monetary policy and the U.S. economy before the Senate banking committee. Analysts said the interest-rate guru was unlikely to hint at the central bank’s next move, however, and he will probably offer only his usual carefully worded phrases about tight labor markets and the vigilance of the inflation-fighting Fed. Greenspan’s appearance is the first of his two-part, twice-yearly testimony to Congress. He will speak before the House banking committee July 25. The Fed next meets Aug. 22. It has raised interest rates six times since June 1999. Wall Street is also looking forward to another data-laden week, with new inflation figures in the spotlight. On Tuesday, the government is scheduled to release consumer price data for June, which many investors hope will give clues as to the Federal Reserve’s next move on interest rates.
