Earnings may improve mood on Wall Street
Investors head into the week with a bit more resolve that U.S. companies are doing a better-than-expected job of managing their way through an economy stifled by turmoil in the housing and credit markets.
Wall Street is about midway through second-quarter earnings season, and the overall results haven’t been as dreary as some analysts feared. About 61% of the Standard & Poor’s 500 index companies that have reported results have surpassed projections, and 72% of them were able to top last year’s sales figures.
Expectations were low for the quarter and that helped some companies beat forecasts. But if you strip out the market’s problem child -- the financial sector -- S&P; said companies were headed for a 10% growth rate from last year.
“Regardless of the estimates or hype, a double-digit gain from non-financials is impressive -- in any economy,” said Howard Silverblatt, S&P;’s senior index analyst.
The fact that earnings have withstood the second-quarter turmoil might help put a more positive spin on the coming week. Investors are awaiting reports from several members of the Dow Jones industrial average and dozens of S&P; 500 companies.
There also won’t be a shortage of data that might offer some clarity about where the economy is heading. Readings are due on employment, gross domestic product and the manufacturing sector.
As the volatility of recent months has shown, investors are clamoring for more data and earnings to help justify a return to stocks. Last week’s seesaw trading pattern indicated more clarity was needed -- stocks began the week with a rally on hope about banks, then fell sharply Thursday on fears about banks, and clawed its way back Friday to end moderately higher.
The Dow Jones industrial average ended the week down 1.1% and the S&P; 500 fell 0.2%. The technology-heavy Nasdaq composite index rose 1.2%, helped by a tech rally Friday.
With many stocks trading at multiyear lows, and the major indexes down nearly 20% from their October highs, some investors are hoping the market is poised for a rebound.
“Calling the bottom will be easy, six months after the fact,” Silverblatt said. “As for now, it is a stock-pickers market for most investors, with short-term speculators playing the sectors.”
This week, investors will be watching to see whether oil prices will keep falling -- they closed below $124 a barrel Friday. The retreat could give the economy a boost, helping consumers’ wallets and corporate profit margins.
Investors will also be watching closely to see what Chevron Corp. and ExxonMobil Corp. have to say about the oil markets. Both companies are expected to post record profits because of high oil prices.
In economic news, investors on Thursday will get a look at the first report on gross domestic product for the second quarter. Economists polled by Thomson Financial/IFR expect the Commerce Department to report that gross domestic product rose at a 2.4% pace thanks in part to the government’s tax rebate checks, which appeared to boost the economy sooner than expected. In the first quarter, GDP, the broadest gauge of economic health, rose at a feeble 1% pace.
Perhaps the most notable economic reading will be Friday’s July employment report.
The Labor Department report is expected to show that job losses grew and that the unemployment rate ticked higher.
Also Friday, the Institute for Supply Management is expected to release its July index on the manufacturing sector and the Commerce Department is slated to report on construction spending.
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At a glance
Today
Treasury bill auction.
Quarterly earnings reports due from Amgen, Kraft Foods, Tyson Foods, Verizon Communications and Wm. Wrigley Jr.
Tuesday
Conference Board releases the consumer confidence index for July.
Standard &Poors;/Case Shiller home price index for May is released.
Quarterly earnings reports due from Electronic Arts, Northrop Grumman, Viacom, Centex, Colgate-Palmolive, Hanesbrands, MetLife, Pilgrim’s Pride, United States Steel, Valero Energy and Waste Management.
Wednesday
Quarterly earnings reports due from Walt Disney, IAC/InterActiveCorp, Comcast, Avon Products, Corning, Office Depot, Prudential Financial, Reynolds American, Starbucks and Visa.
Thursday
Commerce Department reports on second-quarter gross domestic product.
Labor Department reports on weekly jobless benefit claims.
Freddie Mac reports on mortgage rates.
Quarterly earnings reports due from Aetna, Altria Group, American Electric Power, Cablevision Systems, CBS, CVS Caremark, Eastman Kodak, ExxonMobil, Goodyear Tire & Rubber, International Paper, Kellogg, Marathon Oil, MasterCard, Motorola and Newell Rubbermaid.
Friday
Labor Department reports on nonfarm employment and the unemployment rate for July.
Commerce Department reports on construction spending for June.
Major automakers report U.S. auto sales.
Quarterly earnings reports due from Chevron, Cigna, KBR, NYSE Euronext, Sun Microsystems and Washington Post.
Source: The Associated Press
