More Earnings as Season Begins to Wind Down
Stocks could drift lower this week as earnings season winds down and investors search for fresh catalysts to drive the market higher after a buying spree over the last 11 months.
This week will bring another slew of earnings reports from corporate America, and although profit growth has been strong in the last quarter, Wall Street has been increasingly impervious to the good news. Major market indexes have slipped over the last two weeks even after companies delivered robust results, as investors cashed in gains from a stock rally that began last March.
As of last Friday, roughly 80% of Standard & Poor’s 500 companies had reported quarterly results. Companies reporting so far have reported year-over-year earnings growth of about 22%. On average, last quarter’s results beat Wall Street’s average estimates by about 5%.
Despite the strong improvement in earnings, investors are still reeling from comments from the Federal Reserve, which hinted that it might be closer to an interest-rate hike sooner than most Wall Streeters were expecting, analysts said.
Moreover, many investors remain leery after technology bellwether Cisco Systems Inc. gave a cautious outlook about corporate spending in its earnings report last Tuesday.
This week, companies in the earnings spotlight include Dow components Walt Disney Co. and Coca-Cola Co., which both report results Wednesday.
Technology bellwethers due to post results include computer maker Dell Inc. and Nvidia Corp., a graphics chip designer, which both report Thursday.
Besides earnings, analysts said stocks could also take a cue from a meeting of the Group of 7 finance ministers and central bankers that ended late Saturday. The meeting took place amid rising worries over the slumping value of the U.S. dollar.
Although the Bush administration publicly says it supports a strong dollar, it also has been careful to add that the dollar’s value should be determined in competitive markets.
“If the dollar continues to decline, it’s good news for the earnings of multinationals, but it’s bad news because foreign investors will continue to back away from our market,” since it makes dollar-denominated assets less attractive, said Hugh Johnson, chief investment officer at First Albany Corp.
On the economics front, most of the key indicators are expected on Thursday, when the government will issue data on weekly claims for jobless benefits as well as reports on business inventories for December and retail sales for January.
Analysts will be watching January’s retail sales for signs of whether consumer spending, which accounts for about two-thirds of U.S. economic activity, could be slowing down.
Economists will scrutinize the inventories report for signs that businesses are restocking shelves to keep up with demand. Businesses have kept inventories at historically lean levels in the last year as they waited for a pickup in the economy.
But Friday also will bring some numbers worth noting: On tap are the December international trade deficit, which is projected to widen to $39.45 billion from $38.01 billion in November, and the University of Michigan’s preliminary February reading on consumer sentiment, which is forecast to dip to 103.3 from January’s final reading of 103.8.
