Investors await earnings reports, Fed assessment
As Wall Street waits for Congress to act on President Barack Obama’s stimulus plan, investors will look to a slew of earnings reports and comments from the Federal Reserve this week for clues on when the economy might begin to improve.
Hundreds of companies, including those in technology, energy and consumer products industries, will issue reports.
Yahoo Inc., Sun Microsystems Inc. and Texas Instruments Inc. are among the tech firms reporting. Companies such as Procter & Gamble Co., Kimberly-Clark Corp. and Starbucks Corp. will give an indication of consumers’ willingness to spend. Reports from AT&T; Inc., ExxonMobil Corp. and Caterpillar Inc. also are expected.
Although most major financial firms already have issued results, reports from American Express Co. and Wells Fargo & Co. could intensify concerns if they are worse than expected.
Wall Street has largely written off the fourth quarter as disappointing, so investors for the most part have looked past weak earnings. Instead, the market’s direction has largely been dictated by companies’ forecasts.
“Everyone knows that the fourth quarter was bad,” said Quincy Krosby, chief investment strategist at the Hartford. “If we can get some positive surprises in terms of guidance, like IBM’s, the more we can get of that, it will help the tone of the market.”
IBM Corp. surprised investors last week with a forecast for 2009 well above what analysts expected. That helped send the Dow Jones industrials up 3.5% Wednesday, a rebound that nearly erased the previous session’s 4% drop.
But the cheer from IBM’s report was quashed by downbeat news from Microsoft Corp. the following day. The software giant posted an 11% drop in fourth-quarter profit and said it would slash 5,000 jobs over the next 18 months. That led to another sell-off in stocks and helped send all the major indexes down more than 2% for the week. The biggest drop came from the technology-laden Nasdaq composite index, which tumbled 3.4%.
The mix of outlooks has made it difficult for investors to take any firm stance on stocks, leading to huge price swings.
“During periods of earnings, volatility tends to pick up even in the best of times,” Krosby said. “But certainly in this environment that we’re in, in which you’re groping for any guidance six months out, volatility is going to pick up.”
Uncertainty remains in the market as investors await the government’s next moves to help the economy.
Although investors hope Congress will soon pass some sort of economic stimulus plan, they fear the now 14-month-old recession will persist in spite of government’s efforts.
Congress is working on an $825-billion economic recovery package that dedicates about two-thirds to new government spending and the rest to tax cuts. Congress also has given Obama the OK to spend the remaining $350 billion of the $700-billion financial bailout package passed last fall, and investors want to see how that money is allocated, analysts said.
Investors also will be mindful of the Federal Reserve’s assessment of the economy, to be issued after its two-day meeting that starts Tuesday.
Although the Fed cannot cut its benchmark fed funds rate further from the current zero to 0.25%, it could announce more efforts to help unfreeze the housing and credit markets.
“We’re not expecting a whole lot out of that Fed meeting,” said Matt King, chief investment officer of Bell Investment Advisors.
Perhaps the most important economic indicator is the Commerce Department’s first report on fourth-quarter gross domestic product Friday. Many analysts believe the GDP, the nation’s total output of goods and services, plunged at an annual rate of 6% in the quarter, after dropping 0.5% in the third quarter.
“The GDP number is going to be pretty shocking,” King said. --
(BEGIN TEXT OF INFOBOX)
At a glance
TODAY
National Assn. of Realtors releases report on existing-home sales for December.
Treasury auction and briefing.
Conference Board releases report on leading economic indicators for December.
Quarterly financial results expected from American Express, Caterpillar, Halliburton, Kimberly-Clark, McDonald’s, Netflix, Texas Instruments and Tyson Foods.
TUESDAY
Federal Reserve meets.
Senate Banking, Housing and Urban Affairs Committee holds hearing on investment securities fraud.
Conference Board releases its consumer confidence index.
Standard & Poor’s/Case- Shiller releases its November index of home prices.
Quarterly financial results expected from AK Steel Holding, Bristol-Myers Squibb, Delta Air Lines, DuPont, E-Trade Financial, Hershey, Sun Microsystems, Travelers, United States Steel, Valero Energy, Verizon Communications and Yahoo.
WEDNESDAY
Federal Reserve meeting continues. Interest rate announcement expected.
World Economic Forum’s annual five-day meeting draws 2,500 government and business leaders to Davos, Switzerland. Agenda focuses on global financial crisis and ways to stabilize and reinvigorate the global economy.
Quarterly financial results expected from Allstate, AT&T;, Boeing, ConocoPhillips, General Dynamics, Hanesbrands, New York Times, Pfizer, Qualcomm, Starbucks, WellPoint and Wells Fargo.
THURSDAY
Commerce Department releases reports on durable goods and new-home sales, both for December.
Labor Department releases report on weekly jobless benefit claims.
Mortgage company Freddie Mac releases report on weekly mortgage rates.
Senate Health, Education, Labor and Pensions Committee holds hearing on healthcare.
Quarterly financial results expected from 3M, Alaska Air Group, Altria Group, Amazon.com, AutoNation, Colgate-Palmolive, Continental Airlines, Eastman Kodak, Eli Lilly, Ford Motor, International Paper, JetBlue Airways, Media General, Newell Rubbermaid, Occidental Petroleum, Raytheon, Starwood Hotels & Resorts Worldwide and US Airways Group.
FRIDAY
Commerce Department releases advance report of gross domestic product figures for the fourth quarter.
Labor Department releases report on employment cost index for the fourth quarter.
Quarterly financial results expected from Chevron, ExxonMobil, Gannett, Honeywell International and Procter & Gamble.
