Market Features
Coming Week: Financials On Deck
Joanna Ossinger
04/12/08 - 09:51 AM EDT
The markets could be shaping up into financial services vs. everyone else as a busy week unfolds.
Between earnings, inflation data and a Federal Reserve report, it's almost easier to ask what isn't happening next week than to ask what is.
On the earnings side, it's shaping up to be a tug-of-war between the Dow components (nine of 30 report next week), which are generally expected to turn in solid performances; and the financial-services sector, which will see around 80 companies report and is predicted to suffer.
General Electric's(GE Quote - Cramer on GE - Stock Picks) rare earnings miss left the markets in a bearish mood to end the week, though the underperformance was rooted in the company's financial division.
"Today's GE news was a blow to the market because it suggested that the credit crisis may have spread more than people thought," says Richard Sparks, senior equities analyst at Schaeffer's Investment Research.
For the week, the Dow fell 2.3% to 12325.42. The S&P 500 declined 2.7% to 1332.83, and the Nasdaq Composite was off 3.4% over the five-session period, ending at 2290.24.
"We're probably going to get a little more of the same" next week, says Doreen Mogavero, president and CEO of Mogavero, Lee. "There's a lot of cash around," but "it would take some really positive news to get the market moving higher."
"I don't see anything over the short-term that's going to get us out of this range," agrees Charles Rotblut, senior market analyst at Zacks Investment Research.
GE's profit woes may also have investors more nervous about the condition of the blue-chip companies reporting earnings next week.
But, maybe the nerves are unwarranted.
"Outside of JPMorgan(JPM Quote - Cramer on JPM - Stock Picks) and Citigroup(C Quote - Cramer on C - Stock Picks), other Dow components are expected to have year-over-year earnings growth of 11%," Rotblut says.
In particular, International Business Machines'(IBM Quote - Cramer on IBM - Stock Picks) results on Wednesday may serve as a focal point, as the market gauges the massive international conglomerates to see just how much weakness in the U.S. economy is hurting the global outlook.
"IBM said some positive things about their outlook a month ago," Sparks recalls, so he thinks that the company's earnings are likely to be solid.
On the rest of the Dow-component reporting calendar, Tuesday sees Johnson & Johnson(JNJ Quote - Cramer on JNJ - Stock Picks) and Intel(INTC Quote - Cramer on INTC - Stock Picks), while Wednesday brings JPMorgan Chase and Coca-Cola(KO Quote - Cramer on KO - Stock Picks). Thursday holds Pfizer(PFE Quote - Cramer on PFE - Stock Picks) and United Technologies(UTX Quote - Cramer on UTX - Stock Picks), while Friday features Caterpillar(CAT Quote - Cramer on CAT - Stock Picks) and Citigroup.
But, the area where investors can probably continue to be nervous with some justification is among the financials, which are expected to suffer extensively in their first-quarter reports. Banks reporting earnings include Washington Mutual(WM Quote - Cramer on WM - Stock Picks) on Tuesday, Wells Fargo(WFC Quote - Cramer on WFC - Stock Picks) on Wednesday, Merrill Lynch(MER Quote - Cramer on MER - Stock Picks) on Thursday and Wachovia(WB Quote - Cramer on WB - Stock Picks) on Friday.
"The financials are going to take center stage" next week, Sparks says. And since this was the quarter of "getting bad news out, and more writedowns," he doesn't see much hope for upside surprises in the sector.
Many market watchers feel the financials will have to lead any real rally in stocks, so unless this sector does happen to perform unexpectedly well, a big upward move is unlikely.
Other earnings markers include AMR(AMR Quote - Cramer on AMR - Stock Picks), the parent of American Airlines, on Wednesday; that will be of interest after all the recent flight cancellations for mechanical issues.
Then on Thursday, Google(GOOG Quote - Cramer on GOOG - Stock Picks) reports earnings.
"There's going to be a lot of focus on the ad sales and the trends they are seeing," Rotblut says. He wonders whether the decelerating U.S. economic growth will begin to catch up with Google.
Turning to the economy, two of the biggest reports of each month -- the producer-price index and consumer-price index -- come out on Tuesday and Wednesday, respectively, from the Bureau of Labor Statistics. These inflation readings are always a big deal, but with commodity prices so high and the economy teetering on the edge of a recession, they may take on added significance.
Then, on Wednesday, the Fed releases its Beige Book report. Even though it's an anecdotal look at the economy, rather than a quantitative report, this report will get attention because it's akin to a finger on the pulse of the U.S. economy as opposed to a lagging indicator like most of the hard numbers.
For the Beige Book, "they interview so many people in so many industries, it's as close to real-time as you can get," Rotblut says.
Other notable economic reports next week are Monday's retail-sales data from the Census Bureau, the NY Empire State Index on Tuesday, and Friday's Philadelphia Fed survey.
"Just cross your fingers and hope nobody says anything bad at the wrong time" to make stocks go lower, Sparks says. After last Friday's declines "I think all bets are off" about whether the market has reached bottom, "but if the big banks can come out next week and say things that calm the market, say this crisis is closer to the end, that will help."
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