Investors Look Forward to Earnings Season Start
With crude prices still near historic highs and the Federal Reserve holding steady on interest rates, investors have been looking forward to the start of earnings season to see whether corporate America can still deliver strong profits.
The markets sold off heavily last week as the Fed gave no signal when it might stop raising interest rates. With oil closing out the week above $58 a barrel, investors are worried that high rates and high energy prices will slow the economy too much.
So it falls now to second-quarter earnings, which kick off Thursday with Alcoa Inc.’s report, to reassure Wall Street that corporate profits will continue to grow at a healthy pace and keep the economy moving forward despite increasing interest rates and oil prices that show no signs of dropping.
Until Thursday investors can expect a sluggish market, with light volume due to the holiday-shortened week.
Last week, the major indexes were relatively unchanged, as a drop in oil prices from a record high June 27 was offset by disappointment over the Fed’s apparent willingness to continue its policy of steady rate hikes. For the week, the Dow Jones industrial average gained 0.05%, the Standard & Poor’s 500 climbed 0.24% and the Nasdaq composite index rose 0.2%.
Investors will also look to the Labor Department’s job creation report, due Friday, for signs that the economy continues to generate jobs. The May report, which showed 78,000 jobs created, was a disappointment, though some investors felt it would prompt the Fed to change its rate policy. Economists are looking for 180,000 jobs to have been created in June.
The Commerce Department’s report on U.S. factory orders is due Tuesday. Economists expect orders to have risen 3% in May, a sharp increase from the 0.9% increase recorded in April.
And on Wednesday, the Institute for Supply Management will release its index measuring June’s economic activity in the service sector. The service index is expected to edge slightly lower, to 58, from a 58.5 reading in May.
Metal manufacturer Alcoa has traditionally been the first Dow industrial to announce its quarterly earnings, which it will release after Thursday’s session. Alcoa is expected to post earnings of 48 cents a share, up from 46 cents in the second quarter a year earlier. The company’s stock slumped this year, off 25.3% from its 52-week high of $34.99 on Nov. 29. It closed Friday at $26.14.
Management consultant Accenture Ltd., also reporting late Thursday, has traded in a narrow range for most of the last year, but is up 10.9% from its 52-week low of $21 on May 13, closing Friday at $23.28. The company is expected to earn 43 cents a share for the quarter, down from 47 cents a year earlier.
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The Week Ahead
Today
* U.S. financial markets are closed for Independence Day. Markets are open in other countries.
Tuesday
* The Commerce Department reports on factory orders for May.
Wednesday
* The Institute for Supply Management reports on the service sector during June.
Thursday
* The largest U.S. retailers report their June sales figures.
* The Commerce Department reports on U.S. personal income for June.
* The Labor Department reports on weekly jobless claims.
* Mortgage company Freddie Mac reports on mortgage rates.
Friday
* The Labor Department reports on employment for June.
* The Federal Reserve reports on consumer credit for May.
