Earnings reports remain a hurdle in market’s path

Is Wall Street still in a bear market, or beginning a bull market? Either way, it’s probably due for a major pullback.

And this week, the market’s hurdle is a big one: A flood of quarterly results and outlooks from companies as varied as banks, toy sellers and computer chip makers.

Stocks have been on a tear, gaining 23% over five straight weeks from 12-year lows. The Dow Jones industrial average finished last week at 8,083, a two-month high.

But the market cannot go up forever, especially when the economy remains so uncertain.

Since 1900, whenever the stock market has risen more than 20% within two months, it has dropped an average of 7% in the ensuing month, according to JPMorgan equity analyst Thomas J. Lee. Historical averages do not always accurately predict the future, of course, but the statistic is a glaring reminder that Wall Street is still on shaky ground.

“A bear market rally looks exactly like this -- very, very quick. It sucks people in,” said Robert Levitt of Levitt Capital Management.

Last week’s Dow performance was decent -- a 0.08% advance -- thanks to a late-week rally on an upbeat profit forecast from Wells Fargo & Co. But investors got a taste of volatility earlier in the week, and there could be more to come. The Dow lost 2.8% over Monday and Tuesday as investors became worried about the bad news that earnings reports might bring.

The market did a sharp U-turn Thursday and jumped higher after Wells Fargo announced that it expected a record $3-billion profit for the first quarter, an encouraging sign that the banking industry might not be as damaged as many had feared. But using Wells Fargo to take the temperature of the entire banking industry is a bit like using New York’s real estate market as an indicator for the whole country’s: It has simply been much stronger than others.

Investors need more data points, and that is what they will get this week in the way of first-quarter results. Along with those results will come guidance from executives on how the rest of the year looks.

“If you have a market that’s already starting to build in a turn, what the guidance is going to do is either confirm it or deny it,” said Quincy Krosby at the Hartford.

More banks will be releasing quarterly results this week, notably Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co. Other industries reporting earnings include technology (Intel Corp.), media (Gannett Co., Media General), nondiscretionary consumer products (Johnson & Johnson) and discretionary goods (Mattel Inc., Harley-Davidson Inc.).

Economic data will also be coming in. The government reports this week on retail sales, inflation, industrial production and home construction.

Over the last month, economic readings on several fronts -- new- and existing-home sales, manufacturing activity, retail sales and even jobless claims -- have suggested that the economy might not be in the free fall it was in late last year.

But even if the economy has bottomed, what happens then? Does it stay stagnant or rebound? And if it does rebound, how quickly? Without corporate or economic growth, the stock market cannot grow either.

“The question will become, how much can we grow? We won’t know the answer to that for some time,” said Stuart Schweitzer at J.P. Morgan Private Bank.

The Dow is up 23% from its March lows, but it remains down 693 points, or 7.9%, for the year. And the index would have to climb 6,081 points, or 75%, to return to its Oct. 9, 2007, record of 14,164.53.

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At a glance

TODAY

Internal Revenue Service Commissioner Douglas Shulman speaks at the National Press Club.

TUESDAY

Commerce Department releases the retail sales report for March and business inventories for February.

Labor Department releases producer price index for March.

Quarterly earnings reports due from Intel, CSX, Goldman Sachs Group and Johnson & Johnson.

WEDNESDAY

Labor Department releases consumer price index for March.

Federal Reserve releases industrial production for March and its “beige book” summary of regional economic conditions.

Quarterly earnings reports due from Abbott Laboratories, AMR and Peabody Energy.

THURSDAY

Labor Department releases weekly jobless claims.

Commerce Department releases housing starts for March.

Freddie Mac releases weekly mortgage rates.

Quarterly earnings reports due from Google, JPMorgan Chase, Southwest Airlines and Gannett.

FRIDAY

Quarterly earnings reports due from Mattel, Citigroup, General Electric and Media General.