Quarterly season brings new worries

By Joe Bel Bruno

July 7, 2008 12 AM PT

The Associated Press

Investors battered by surging energy prices, disappointing economic data and the ongoing credit crisis will have something else to worry about this week -- second-quarter corporate results.

The unofficial start of earnings season takes place Tuesday, when aluminum producer Alcoa Inc. posts its numbers. General Electric Co., which gets the spotlight Friday, also will be among the companies reporting.

The two members of the Dow Jones 30 could give Wall Street a glimpse of what to expect when hundreds of other companies report results throughout the month. Not only are investors concerned that companies may not beat already lowered expectations, but they’ll be focused, undoubtedly with some skepticism, on what corporate executives forecast for the second half of 2008.

“The earnings, which are a reflection of the economy in general, have been going down, and unfortunately there’s a lot of concern it will go down a lot more,” said Howard Silverblatt, Standard & Poor’s senior index analyst.

Earnings from members of the S&P; 500-stock index are forecast to be down 10% for the second quarter. The nation’s banks and brokerages will probably lead the pullback with another disappointing quarter.

Companies such as Merrill Lynch & Co. and Citigroup Inc. are again expected to write off billions of dollars of assets rendered nearly worthless because of the global credit crisis. Since last year, banks have written down nearly $300 billion -- and that is not expected to let up.

Financial stocks last year contributed $60.7 billion of earnings to the overall S&P;, and this time the number is expected to be $24.6 billion, according to S&P.;

And, in a demonstration of how dominant financials are, Silverblatt said earnings for the S&P; 500 would rise 9% during the second quarter if banks and brokers were stripped out of it.

Wall Street finished last week with another decline, with the Dow Jones industrials down 0.51%, the S&P; 500 index down 1.21% and the Nasdaq composite index down 3.01%. Although those drops were less steep than the pullback a week before, investors are showing dissatisfaction with the economy, especially energy prices.

Investors are expected to remain anxious this week, with crude oil starting out within striking distance of $150 a barrel. On Thursday, oil touched nearly $146 before it settled at a record $145.29.

The nearly 50% jump in the price of oil this year has weighed on businesses and consumers and posed a challenge to Federal Reserve policymakers, who are trying to keep the economy out of a prolonged downturn.

Low interest rates have weakened the dollar, which has made oil more expensive. Now, with consumers forced to pay more at the gas pump, Wall Street is worried about a broad slowdown in spending.

On Tuesday, the National Assn. of Realtors reports on pending sales of existing homes. The May index is expected to come in at 87, according to the median estimate of economists surveyed Wednesday by Thomson Financial. That would be down from a reading of 88.2 in April.

On Thursday, the Labor Department releases its weekly reading on unemployment claims. Economists anticipate a slight rise of 1,000 to 385,000.

On Friday, the University of Michigan releases its preliminary reading on July consumer sentiment. Economists expect the index to slide to 56 from 56.4 in June.

At a glance

Today

Treasury bill auction.

Tuesday

Federal Reserve reports on consumer credit for May.

Alcoa Inc. releases second-quarter financial results.

Thursday

Labor Department reports on weekly jobless claims.

Freddie Mac reports on mortgage rates.

Marriott International Inc. releases second-quarter financial results.

Friday

Commerce Department reports on international trade for May.