Updated from 01/16/10
Update includes news that Kraft is close to sealing a takeover deal with Cadbury.
NEW YORK (
) -- Market watchers will begin next week much how they ended the last: with an intensive focus on banking and technology company earnings.
Each of the major averages lost ground last week. The
shed almost 0.1%, while the
declined by 0.8% and the
U.S. markets will be closed Monday in observance of Dr. Martin Luther King Jr. Day. But a full slate of quarterly reports will be coming the rest of the week.
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Both large and regional financial sector players are set to report, including
Bank of America
The past week was not a kind one for the banks. To wit, the CEOs of four major institutions were grilled by the
last Wednesday. By Thursday,
announced plans to tax the biggest banks in an effort to recoup costs associated with $700 billion bailout package. And that news came amid increasing frustration on Main Street over increasing banker bonuses.
By the end of last week,
announced that it beat profit forecasts. But the Dow tumbled 101 points, or 1%, to finish at 10,610 on Friday
that weighed on the banking sector.
Michael Pento, chief economist at Delta Global Advisors, says he'll be looking closely next week to see whether the banking sector's first major report is indicative of a trend.
"Let's look at JPMorgan. They beat on the bottom line but their revenue number stunk," Pento says. "So, can we continue to burn our furniture to keep the house warm? Eventually, the top-line revenue has to increase. Sales have to increase or we're going to see a market decrease in the earnings power of our corporations."
Chris Johnson, CEO and chief investment strategist at Johnson Research, said expectations are running high for the sector. Still, he's concerned given last week's populist tenor.
"To some degree, it's not only the earnings picture, but I think there's a skepticism over the group," said Johnson, noting he's staying away from the sector. "When you start off hear about taxes being pulled out of the woodwork and applied to these companies in the name of getting money back for the taxpayer, that's just a type of uncertainty you don't want to see, especially as these companies are starting to emerge out of the hole they dug themselves a couple years ago."
Both Citigroup next Tuesday and Bank of America on Wednesday are expected to show losses during the fourth quarter, according to the consensus forecast of analysts polled by Thomson Reuters. Wall Street sees Morgan Stanley, which also reports Wednesday, earning 36 cents a share and Wells Fargo narrowing its loss to 2 cents, from a slide of 79 cents a share in the year-earlier period.
Then there's Goldman Sachs. The bank, which reports results on Thursday, is expected to earn $5.19 a share for the fourth quarter and notch its biggest annual profit on record. The bank has appeared at the center of the bonus maelstrom, with CEO Lloyd Blankfein taking the brunt of questioning during the FCIC hearing last week.
Several tech bellwethers also are set to report next week. Dow component
blew past estimates late Thursday, but the stock didn't act as the upside catalyst many expected. Instead, it pulled back 3.2% Friday following a 5% run-up that started at the beginning of 2010. Observers worried that Intel's report may have revealed a peak for the chipmaker and other tech players.
But Johnson noted that there's "some optimism" in the tech sector, and further upbeat tech reports next week may serve as a catalyst for buying.
kicks off the sector's earnings reports on Tuesday, with forecasts calling for earnings of $3.47 a share. That would be an improvement on the $3.28 a share IBM posted in the year-earlier quarter. Analysts expect
to report a profit of 40 cents a share on Wednesday and
to post earnings of $6.43 a share in its report Thursday.
, as well as airliners
will be on tap as well.
Elsewhere, investors will closely watch for the latest news on
. A media report Monday evening said
was close to sealing
a friendly takeover
of the British candy and gum maker valued at as much as $19 billion.
That report followed a report earlier in the long weekend that
was wrapping up a financing plan to offer at least $17.9 billion for Cadbury, topping Kraft's earlier, hostile offer valued at about $17.2 billion.
Economists and analysts will also eye a few economic reports next week. The December producer price index, slated to be released Wednesday, is forecast to remain flat after surging higher by 1.8% in November.
That will follow news that
last month. But Pento noted that the consumer price index edged higher by 2.7% since last year.
"Inflation is growing higher," said Pento, who is predicting a double-dip recession. "Interest rates on the long end of the curve are starting to move higher, and real interest rates are plummeting. I can't think of anything more significant that's occurring in the market."
"I'm going to look for further confirmation in the PPI that we've seen from import prices, or the ISM prices paid component, or the CPI that we have a problem with inflation and that real interest rates continue to be negative and growing more so," added Pento.
Housing starts figures will join the PPI release on Wednesday. A review of leading indicators and a separate manufacturing report from the Philadelphia
will also come due.
-- Written by Sung Moss in New York