Investors Watching Oil Prices, Iraqi Voting
The uncertainties that have plagued Wall Street and overshadowed a strong earnings season probably will continue this week, as investors wrestle with high oil prices, the upcoming Iraqi elections and ongoing concerns about interest rates and inflation.
Though earnings have been strong -- analysts at Thomson First Call say actual earnings as well as estimates for companies yet to report show a 16.5% growth rate -- the markets suffered their third straight week of declines last week.
Investors are bracing for discontent in Iraq ahead of its Sunday elections, and some of January’s surge in oil prices can be attributed to concerns that Middle East terrorist attacks could target the oil industry.
Wall Street could see relatively light trading in the week ahead as well, despite a raft of earnings reports.
The Fed’s Open Market Committee begins two days of meetings Feb. 1, and with the minutes of the December meeting having shown some concerns over inflation, investors may want to wait and see what the Fed does.
The nation’s benchmark interest rate stands at 2.25%, and a hike to 2.5% is considered probable.
Still, despite the uncertainty, very strong earnings -- including a few positive surprises -- could spur some buyers to return to the market.
Last week, oil prices and earnings disappointments from EBay Inc. and J.P. Morgan Chase & Co. unnerved investors. For the week, the Dow fell 1.56%, the Standard & Poor’s 500 index was down 1.41%, and Nasdaq dropped 2.57%.
The last time the Dow and S&P; 500 started January with three straight down weeks was in 1977.
One possible bright spot for Wall Street could come as the Commerce Department releases its first report on the fourth-quarter gross domestic product, the largest single measure of economic growth.
Analysts expect the GDP to grow at an annual rate of 3.5% for the quarter, though some believe that the 4% growth from the third quarter could be sustained through year’s end. A 4% GDP hike probably would provide some relief to the selling on Wall Street.
Ten of the 30 Dow industrials are reporting this week, alongside more than 150 other major companies. Of those, drug maker Merck & Co. will be closely watched to see the effect of its Vioxx catastrophe -- the company pulled the arthritis drug from the market last year after it was associated with an increased risk of heart attack and stroke.
Merck is expected to report earnings of 50 cents a share, down from 62 cents in the fourth quarter of 2003.
Microsoft Corp. is expected to see earnings fall year over year, a rarity for the software giant. It’s expected to report earnings of 32 cents a share for the quarter, down from 34 cents in the final quarter of 2003.
Despite a special $3 dividend issued late last year, the stock has gained only 6.2% from its 2004 low of $24.15 on March 23.
Profit at McDonald’s Corp. continues to climb as the company’s new management settles in. The fast-food chain is expected to report earnings of 45 cents a share, up from 35 cents a share in the year-ago quarter.
Other companies reporting in the week ahead include:
* DuPont & Co. is expected to report earnings of 33 cents a share, up from 29 cents in the year-earlier quarter, when it reports Tuesday.
* Johnson & Johnson, also reporting Tuesday, is forecast to post earnings of 64 cents a share, compared with 62 cents in the final three months of 2003.
* Altria Group Inc. is expected to post earnings of $1.06 a share, the same as last year, when it reports Wednesday.
* Verizon Communications Inc., reporting Thursday, is expected to report earnings of 64 cents a share for the quarter, up from 58 cents for the same quarter in the previous year.
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The Week Ahead
Today
* Jury selection expected to wrap up in the trial of fired HealthSouth Corp. Chief Executive Richard Scrushy, charged with leading a conspiracy to overstate company earnings.
* American Express Co. and Cingular Wireless release quarterly earnings.
Tuesday
* The National Assn. of Realtors reports on existing-home sales for December.
* The Conference Board reports its monthly consumer confidence index.
* Scotts Co., AK Steel Holding Corp., BellSouth Corp., DuPont Co. Johnson & Johnson, Kraft Foods Inc. and Merck & Co. release quarterly earnings.
Wednesday
* Norfolk Southern Corp., Diebold Inc., Eli Lilly & Co., Altria Group, Eastman Kodak Co., Gannett Co., Hershey Foods Corp., Knight-Ridder Inc. and Starbucks Corp. release quarterly earnings.
* The World Economic Forum opens its annual five-day conference in Davos, Switzerland.
Thursday
* The Commerce Department reports on durable goods orders for December.
* The Labor Department reports on weekly jobless claims.
* Freddie Mac, the mortgage company, reports on mortgage rates.
* Guidant Corp., American Electric Power Co., United Parcel Service Inc., Media General Inc., Bristol-Myers Squibb Co., Dow Jones & Co., Lockheed Martin Corp., Microsoft, Sears, Roebuck & Co., UAL Corp. and Verizon Communications release quarterly earnings.
Friday
* The Commerce Department reports on gross domestic product, fourth quarter.
* The Labor Department reports on employment cost index, fourth quarter.
* Procter & Gamble Co., ChevronTexaco Corp., Halliburton Co., Honeywell International Inc. and McDonald’s release quarterly earnings.
