Coming Week: Financials On Deck
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) - Get Report
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
.
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) - Get Report
and
Citigroup
(C) - Get Report
, other Dow components are expected to have year-over-year earnings growth of 11%," Rotblut says.
In particular,
International Business Machines'
(IBM) - Get Report
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) - Get Report
and
Intel
(INTC) - Get Report
, while Wednesday brings JPMorgan Chase and
Coca-Cola
(KO) - Get Report
. Thursday holds
Pfizer
(PFE) - Get Report
and
United Technologies
undefined
, while Friday features
Caterpillar
(CAT) - Get Report
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) - Get Report
on Tuesday,
Wells Fargo
(WFC) - Get Report
on Wednesday,
Merrill Lynch
(MER)
on Thursday and
Wachovia
(WB) - Get Report
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)
, the parent of
, on Wednesday; that will be of interest after all the recent flight cancellations for mechanical issues.
Then on Thursday,
(GOOG) - Get Report
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
and
-- come out on Tuesday and Wednesday, respectively, from the
. 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
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
, 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."