Wall Street to scrutinize banks’ quarterly earnings
Investors knew the first three months of the year were bad for companies, but now it appears that they were downright abysmal -- and that there might be more pain to come. With the nation’s banks releasing their quarterly results this week, anxiety has returned to the stock market.
Last week ended on a grim note, with the Dow Jones industrials falling 256 points Friday after General Electric Co. reported a profit decline and lowered its forecast for the year. The disappointing data from GE arrived on the heels of downbeat earnings and outlooks from companies including chip maker Advanced Micro Devices Inc. and home furnishings retailer Bed Bath & Beyond Inc.
“The biggest risk to the market is earnings,” said David Chalupnik, head of equities at First American Funds, adding that profit forecasts for 2008 appeared too optimistic at this point. “We do expect April to be a volatile month. We expect earnings and guidance to be poor.”
The Dow finished last week down 2.3%, the Standard & Poor’s 500 index ended 2.7% lower, and the Nasdaq composite index slid 3.4%.
This week, the banks open their books. Roiled by a mortgage industry that went haywire when homeowners started defaulting on their loans, the nation’s financial centers are struggling. When banks struggle, they get tight with their lending, which in turn damps the economy.
Citigroup Inc., the nation’s largest bank by assets, and Merrill Lynch & Co., the world’s biggest brokerage, are each believed to have suffered losses in the first quarter, although narrower than those they reported in the fourth quarter. Washington Mutual Inc., the nation’s largest savings and loan, also is expected to post a loss.
Analysts predict JPMorgan Chase & Co. and Wells Fargo & Co. will report profits, but below the levels seen a year ago. Meanwhile, investors will scrutinize first-quarter results from Bear Stearns Cos. to see how wise it was for JPMorgan to buy the struggling firm.
Beyond the actual earnings from these institutions, however, investors will examine how much the banks’ assets lost value in the first three months of the year and seek clues about whether those values could fall further.
“The good news is the credit markets do look to be improving a bit,” Chalupnik said, pointing to the shrinking spread between the rates for high-risk and low-risk debt. “But I think it will still be rough going for the financial sector.”
The torpid economy is making the consumer lending industry a tough one to navigate. Economic reports will probably take a back seat to earnings this week, but any hint that consumers are spending even less than individual retailers’ dismal March sales figures implied last week could influence investors in the long term.
Some analysts say the market is at or near its bottom, having already taken into account a recession. A severe recession could mean sluggishness in the stock market for several months, if not longer.
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At a glance
Tuesday
Labor Department reports on producer price index.
Quarterly earnings reports due from Charles Schwab, CSX, Intel, Johnson & Johnson, Seagate Technology, U.S. Bancorp and Washington Mutual.
Wednesday
Commerce Department reports on consumer price index.
Quarterly earnings reports due from Abbott Laboratories, AMR, Coca-Cola, EBay, IBM, JPMorgan Chase, Johnson Controls, SLM and Wells Fargo.
Thursday
Quarterly earnings reports due from Advanced Micro Devices, Bank of New York Mellon, Baxter International, Capital One Financial, Continental Airlines, E-Trade Financial, Google, Harley Davidson, Marriott International, Media General, Merrill Lynch, New York Times, Nucor, Pfizer, Southwest Airlines, Supervalu, TD Ameritrade Holding and United Technologies.
Friday
Quarterly earnings reports due from Caterpillar, Citigroup, Honeywell International, Schlumberger and Xerox.
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Source: Los Angeles Times
