As investors look toward another week of big earnings reports and uncertainty about the financial system, many are hoping that the panic-fueled selloff of the previous sessions will halt, or at least abate. Investors will be waiting expectantly for any news that emerges from G7 meetings in Washington over the weekend. Finance ministers and central bankers of the world's top economies will be discussing the global financial crisis and formulating strategies to tackle it before the pain gets worse. Some ideas have emerged before the meeting, including a suggestion by Japan's finance minister to set up a global pool of money through the International Monetary Fund to provide loans to struggling nations. British Prime Minister Gordon Brown has advised that other countries follow his nation's lead by injecting large sums of capital into banks and insuring their funds to spur lending activity. Others have suggested insuring all bank deposits, as Ireland did, or conducting another coordinated cut to global interest rate targets, as several countries did this week. The maelstrom of negativity, uncertainty and distrust sapped trillions of dollars in wealth from the U.S. stock market last week, and caused similar cavities in markets around the globe. The dramatic plunge -- some would say crash -- has U.S. regulators considering further action against short-sellers as well as temporary circuit breakers for individual stocks, according to the Wall Street Journal. Italy and Greece banned all short selling on Friday.
Whatever comes out of key discussions and meetings that occur this weekend will certainly drive the markets next week, says Eric Tyson, a financial advisor and author. "The financial markets are obviously looking to political leaders throughout the world to do something else, because what has been done up until this point is not getting a lot of support and appreciation," says Tyson. "The markets are not going to be happy with things being dragged out. The time is now." Major companies in various lines of business are set to report earnings next week as well, providing clues about how much damage the real economy has sustained from the credit crunch. Investors can glean tidbits about where things are headed with reports and potential forecasts from household names like Johnson & Johnson ( JNJ), Coca-Cola ( KO) and Pepsico ( PEP); tech players like eBay ( EBAY) and Google ( GOOG); and transportation companies like CSX ( CSX), Continental Airlines ( CAL) and Southwest Airlines ( LUV). Perhaps most importantly, several banks will also report earnings, including JPMorgan Chase ( JPM), Wells Fargo ( WFC), Citigroup ( C) and Bank of America's ( BAC) newly acquired asset, Merrill Lynch ( MER). Investors will be scrutinizing those reports, as well as commentary from executives on subsequent earnings calls, to take the pulse of the sector that lies at the crux of the current maelstrom. However, it's unclear whether the slew of earnings -- along with economic reports on inflation, housing and business activity -- will have any meaningful impact in what many characterize as an irrational market. Data that represent what has happened over the past few months seem to have become irrelevant, with far less influence than data about what will happen next. Tyson, author of Investing For Dummies, notes that IBM's ( IBM) surprisingly strong early earnings release and bright forecast still failed to halt a drop in its shares, as the Dow Jones Industrial Average slid 1,874.19 points, or 18% over the past week. "These little individual economic reports are basically old news at this point," says Tyson, "and if there's any good news, people are going to discount
it." But Bob Auer, portfolio manager of the Auer Growth Fund, is still scrutinizing the fundamentals. His fund seeks to buy stocks with price-to-earnings ratios of 12 or less in companies where earnings have climbed at least 25% and revenue has grown at least 20%. While economic headwinds have made it more difficult for companies to boost results, plummeting prices have brought great opportunities, says Auer. He cites Arcelor Mittal ( MT), the world's largest steel company, as an example. The company affirmed its third-quarter earnings predictions on Thursday and forecast better results in the second half of the year than its record-setting first half. Still, its shares slumped as much as 12% on Friday as the global selloff continued. "This stock in June was $100, and today it's $30," says Auer. "This is not a fundamental crisis, it's literally a deleveraging -- it's forced selling. And it's creating tremendous buys."