Wall St. turns to profit data

L.A. Times Archives

April 7, 2008 12 AM PT

From the Associated Press

new york -- The fear of the unknown that has rattled the stock market for months appears to be fading.

The question now is whether upcoming corporate financial reports and readings on the housing market will further calm Wall Street’s anxieties or rekindle them.

Stocks rose early last week and held on to their gains, despite data showing that U.S. employers were eliminating more jobs than they had in five years.

There was palpable relief that some banks such as Merrill Lynch & Co. felt they had enough cash, while others in need of capital -- namely Lehman Bros. Holdings Inc. and Switzerland’s UBS -- were able to sell stock to raise cash.

Now that JPMorgan Chase & Co. has offered to buy Bear Stearns Cos. and the Federal Reserve has lent hundreds of billions of dollars to banks, investors are more confident that the financial system can bounce back from what looked last month like a worst-case scenario: a big bank on the brink of collapse.

The overriding sentiment is that troubles down the road won’t pull the whole market and economy down.

“There’s been so much talk of recession for so long now. If anything, I get the sense that people are looking to get back in,” said Brian Gendreau, an investment strategist for ING Investment Management. But they’re apprehensive, he added. “There’s bad economic news still coming in. It takes some pretty steely nerves.”

The Dow Jones industrial average finished last week up 3.2%, the Standard & Poor’s 500 index rose 4.9% and the Nasdaq composite index ended up 4.2%.

The stock market’s recovery was aided by selling exhaustion among big investors. Although it’s impossible to predict the market’s direction, it’s likely that stocks are going to be driven less by investors’ need to cash out and more by the fundamentals underlying each stock. Those fundamentals will be determined mostly by profit reports.

Alcoa Inc. today reports first-quarter results; analysts, on average, predict the aluminum company’s earnings per share fell by 36% from last year. Another Dow component, General Electric Co., reports on Friday, and the average analyst estimate is for a 16% gain in per-share earnings.

The big headliners, however, are likely to be next week’s bank earnings.

Last week, the various banks traded more divergently from one another than they have in months, indicating that there is less fear about the sector as a whole.

The Fed on Tuesday is scheduled to release minutes from its March 18 meeting, when it lowered the federal funds rate to 2.25%. Though the minutes will be regarded to some extent as old news -- they precede the Bear Stearns buyout -- investors will want to see evidence that the Fed remains ready to come to the financial system’s rescue if the credit markets deteriorate further.

It’s certainly possible the credit markets could seize up again because the housing market is anticipated to take at least another year to recover. On Tuesday, economists expect the National Assn. of Realtors to report that pending sales of homes in February were only slightly higher than in January -- which saw the second-lowest reading on record.

“The core, the kernel, of the credit problems are mortgages,” said Quincy Krosby, chief investment strategist at the Hartford, a financial services firm.

“We need to get the housing values stabilized,” Krosby said. “Without that, you’re going to see more deterioration in the credit markets and in the real economy.”

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At a glance

Today

* Federal Reserve reports on consumer credit.

* Treasury bill auction.

* Quarterly financial results due from Alcoa.

Tuesday

* Quarterly financial results due from Levi Strauss.

Wednesday

* Quarterly financial results due from Circuit City Stores.

Thursday

* Commerce Department reports on international trade for February.