Investors await housing, earnings data

L.A. Times Archives

Jan. 7, 2008 12 AM PT

From the Associated Press

NEW YORK —

The start of 2008 has brought a harsh reality to Wall Street: The U.S. may indeed be headed toward recession.

So, after suffering punishing losses the first trading days of the year, the stock market will be seizing on any data or forecast in the coming weeks that can help investors determine whether their worst fears are coming to pass.

And earnings are now part of the equation, with results from Alcoa Inc., the first of the 30 Dow Jones industrials to report fourth-quarter numbers, due Wednesday.

Analysts polled by Thomson Financial expect, on average, the aluminum producer to post a drop in per-share profit but its outlook will probably have a bigger effect on Wall Street.

Last week’s readings showed that the economy continues to slump amid the ongoing mortgage and credit crises, and that energy costs could climb even further.

Over the course of the week, oil prices hit the psychologically important $100-a-barrel mark, investors found out that manufacturing unexpectedly contracted in December, and -- perhaps most ominous -- payrolls grew less than anticipated last month, while unemployment hit a two-year high of 5%.

When people start losing their jobs, they pare back spending and find it harder to pay their bills, a trend that would aggravate already deteriorated lending conditions.

The news pounded stocks. In just the first three trading days of 2008, the Dow Jones industrial average lost 3.5%, the Standard & Poor’s 500 index fell 3.9% and the Nasdaq composite index dropped 5.6%.

Economists and market analysts are still split on whether this year will bring recession, but virtually no one is completely discounting the possibility.

Keefe, Bruyette & Woods banking analysts are factoring into their forecasts a mild U.S. recession in 2008, and they predict unemployment will reach 6% by the end of the year.

There’s hope, though -- Fed rate cuts, companies continuing to find ways to make money and ongoing growth overseas could save the U.S. economy from recession and stocks from a bear market, said Michael Sheldon of Spencer Clarke.

This week, Wall Street will be eyeing housing data -- though bad news rarely comes as a surprise to investors who have sold off stocks in the sector.

On Tuesday, the National Assn. of Realtors releases its forward-looking index of U.S. home sales for November. Economists surveyed by Thomson Financial predict the index will slip after gaining for two straight months, despite the group’s forecast last month that sales and prices would start rising this year.

KB Home’s quarterly earnings report Tuesday could offer further insight into whether the housing market is near its bottom. The home builder is expected to post a loss.

With the job market and energy sector in focus, the Energy Department’s weekly report Wednesday on crude oil, gasoline and heating oil inventories and the Labor Department’s weekly reading Thursday on jobless claims will be closely monitored.

Comments from Fed officials could give investors a clearer view of where the economy is headed, and whether inflation is a growing concern to the central bank.

On Friday, the Commerce Department reports on November’s international trade and December import prices. These data could indicate how the weakening dollar is helping or hurting the United States’ position in global commerce.

At a glance

Today

Bush speech.

Treasury bill auction.

Consumer Electronics Show opens in Las Vegas and runs through Thursday.

Tuesday

Federal Reserve reports on consumer credit for November.

Quarterly earnings reports due from KB Home, Constellation Brands and Supervalu.

Wednesday

Quarterly earnings report due from Alcoa.

Thursday

The nation’s largest retailers announce their sales figures for December.