Clarity Coming to Wall Street
01/12/08 - 09:30 AM EST
Liz Rappaport
Next week may not bring such an event, but it may well bring some ugly economic and earnings surprises.
Earnings were off to an unpleasant start last week, when aluminum producer Alcoa(AA Quote - Cramer on AA - Stock Picks) unofficially kicked off the season with a weak report and comments about high energy costs and pressure from the weak value of the U.S. dollar. KB Home(KBH Quote - Cramer on KBH - Stock Picks) also missed analysts' expectations by a wide margin, as analysts further ratcheted down estimates for fourth-quarter financial sector profits. The combination has quickly driven down the overall fourth-quarter earnings growth rate estimate to a decline of 11% from last week's expected 9.5% decline. The financial sector's slump is expected to ring in at a whopping 71% decline, more than last week's still-dismal 66% expected profit growth drop. Key among next week's reports will be the financials, with Citigroup(C Quote - Cramer on C - Stock Picks), JPMorgan Chase(JPM Quote - Cramer on JPM - Stock Picks), Merrill Lynch(MER Quote - Cramer on MER - Stock Picks) and Washington Mutual(WM Quote - Cramer on WM - Stock Picks), among others. Financial stocks generally bucked the Dow Jones Industrial Average's almost 247-point drop Friday, as the sector rallied on hope for a fresh round of mergers following Bank of America's(BAC Quote - Cramer on BAC - Stock Picks) $4 billion deal for troubled mortgage lender Countrywide Financial(CFC Quote - Cramer on CFC - Stock Picks) and rumors JPMorgan could be interested in WaMu. On the other hand, rumors have already swirled in the opening days of 2008 about greater writedowns expected from Wall Street's titans based on their exposure to the mortgage market and related structured products and derivatives. Several market participants have reported seeing some collateralized debt obligations, or CDOs, liquidating their assets, creating some new and lower price levels for mortgage-backed debt. Markdowns in the past have always meant writedowns. As for economic data, traders have a hefty calendar to digest, all of which is expected to reveal that the credit crunch of late 2007 has indeed spilled over into the real economy. With retailers' dismal December sales reports like Target's(TGT Quote - Cramer on TGT - Stock Picks) and Macy's(M Quote - Cramer on M - Stock Picks) still fresh in traders' minds, the week kicks off with the government's report of December retail sales on Tuesday. The following days are a barrage of data, including inflation gauges, such as the consumer price index and the producer price index. Wednesday brings reports on December's industrial production, capacity utilization and the Fed's intermeeting assessment of the economy, the Beige Book. A couple of regional economic reports for December come out next week as well. The New York Empire State index is expected to rise slightly, as is the Philadelphia Fed survey of manufacturing activity, which is released Thursday. |
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