NEW YORK ( TheStreet) -- Choose your words wisely, Ben Bernanke! There's very likely a summer rally riding on exactly what you and your buddies on the Federal Open Market Committee say next. The market is still digesting last week's incredible turnaround. Last Tuesday, for example, the Dow Jones Industrial Average scraped 12,521 in intraday action and closed at 12,617, losing ground for a third straight session. The yield on the 10-year Treasury bonds broke below 1.4% for the first time ever, and Europe was still in teeter territory. Fast forward a week and a Mario Draghi promise to do "whatever it takes." The Dow is sitting above 13,000 and there are some voices out there calling for the Federal Reserve to announce QE3 tomorrow in order to ensure the politics of a presidential election don't come into play later in the year. The general view is the Fed could move its promise to keep interest rates at historic lows to sometime in 2015 from the current pledge of late 2014. More than that though, investors will be interpreting what changes in the language of the policy statement mean for the timing of the additional stimulus that Wall Street already appears to have priced in. Here's how Scott Wren, senior equity strategist at Wells Fargo, described the market mood in commentary late Tuesday. "Can you feel it? The pressure is building. Investors want the Federal Reserve and the European Central Bank (ECB) to announce something. Right away. This week," Wren wrote. "The U.S. stock market's push higher last week was largely a reflection of the expectations for some sort of imminent action, or hint of imminent action that might result from the two-day Federal Open Market Committee (FOMC) meeting and the ECB meetings this week. It is now a game of wait and see for the financial markets." UBS also weighed in on what it thinks the Fed will do on Tuesday while lowering its estimates for gross domestic product in the final two quarters of 2012. That's the rub, of course, that the reason the Fed appears inclined to do more is because the economy is still doing less. Investors in equities seem willing to live with this if it means more stimulus in the near term, effectively putting the big picture on the back burner.
UBS cut its estimate for the third quarter to GDP growth of 1.5% from 2.3% and took down its view for the fourth quarter to growth of 1.8% from 2.8%. It now sees the year-end unemployment rate at 8% vs. a prior estimate of 7.8%. The firm cited "the persistence of business uncertainty about both the European financial/economic crisis and the potential US 'fiscal cliff'" for the changes. "In this setting, we now see even odds that the Fed will initiate a further easing program come September," UBS said. "However, we do not expect any easing to take the form of further Treasury or MBS
mortgage bond securities buying programs. Rather, we would expect the Fed to undertake an easing program within its discount window facility. Another easing program also suggests our Fed rate hike call is too early. We now expect the Fed to begin some tightening of policy by early 2014 rather than mid-2013." If a friendlier Fed is the upside of the slow economic recovery, weakening earnings are the downside as evidenced by the current yawn-worthy reporting season and the unwillingness of companies to show much bullishness about the third quarter and beyond. UBS estimates that every 1% change in GDP corresponds to a 3-4% change in revenues and a 4-5% change in earnings and it believes if the economy follows along with its lower view, equities don't offer much upside from here, no matter what the Fed does. "Our year-end target for the S&P 500 is 1,375 -- roughly flat from current levels," the firm said. "Should the economic forecasts described above play out, it would be quite difficult for equities to move higher, in our opinion." In the near-term, Birinyi Associates observed the odds are in favor of a positive move for the S&P 500 on Wednesday. The firm said the benchmark index has risen 67% of the time on FOMC decision days with the average gain coming in at 0.47%. It also notes that a strong majority of economists surveyed by Bloomberg -- 88% -- aren't expecting the Fed to announce new debt purchase plans.
As for the rest of Wednesday's scheduled news, Boston Beer ( SAM) is reporting its second-quarter results, and the average estimate of analysts polled by Thomson Reuters is for earnings of $1.28 a share in the June-ended period on revenue of $152.5 million. This should be an interesting report for the maker of Samuel Adams as there's been some confusion in the market about how the company's new cider brand Angry Orchard is doing. UBS, which has a sell rating and a $103 price target on the stock, shed some light on the issue on Monday. "We believe a misclassification in Nielsen is understating actual retail sales," the firm explained. "Specifically, Angry Orchard sales are being captured under the retired Hardcore Cider brand. As such, we discovered that Angry Orchard's impact is greater than expected. In the last 4 wks, Angry Orchard distribution in Nielsen AOC is now estimated at 21% (from 9%) and represents 7% of SAM's portfolio (from 1%). Incremental sales could represent a 3% tailwind to topline in 2012." This development prompted UBS to lift its below-consensus estimate for the second quarter to earnings of $1.19 a share from $1.16 a share and its volume view to 12% growth from 11% with Angry Orchard seen offsetting some of the impact of slowing demand for the company's Twisted Tea brand. The firm is still skeptical about Boston Beer though because of its valuation and perceived softness in business trends. "Our call on Boston Beer is predicated on the core slowing, exposed by the slowing growth of Twisted Tea," the firm said. "The early success of Angry Orchard offsets some of the near term effects of Twisted Tea slowing, but doesn't change the overall thesis. We anticipate more dramatic slowing in the fall. At 25-times our 2013 EPS, we see downside if future innovations cannot sustain double-digit topline." Boston Beer shares closed Tuesday at $107.72, down 2.5% for the day but still up 1.7% so far in 2012. The stock has gained nearly 25% in the past 52 weeks, hitting a high of $128.07 on July 5. The sell side is mostly bearish with 4 of the 6 analysts covering the shares at either hold (3) or underperform (1) and the 12-month median price target at a modest $104. Check out TheStreet's quote page for Boston Beer for year-to-date share performance, analyst ratings, earnings estimates and much more.
Mastercard ( MA) also reports its numbers on Wednesday with Wall Street expecting a profit of $5.58 a share on revenue of $1.88 billion in the June quarter. Shares of the credit card giant have outperformed in 2012, rising more than 18%, and the company has typically kept up its end of that bargain, beating the consensus view in eight straight quarters with an average upside surprise of 7.4%. Other companies slated to report before the bell include Allergan ( AGN), Amerigroup ( AGP), Automatic Data Processing ( ADP), Avon Products ( AVP), Burger King Worldwide ( BKW), Comcast ( CMCSA), Consolidated Graphics ( CGX), Devon Energy ( DVN), Dollar Thrifty Automotive ( DTG), El Paso Electric ( EE), Energizer Holdings ( ENR), Exelon ( EXC), Garmin Ltd. ( GRMN), Harley Davidson ( HOG), Hospira ( HSP), IntercontinentialExchange ( ICE), R.R. Donnelly ( RRD), Radian Group ( RDN), Republic Airways ( RJET), Time Warner ( TWX) and Vonage Holdings ( VG). Late reporters include Alamo Group ( ALG), Amdocs ( DOX), Avis Budget Group ( CAR), Extreme Networks ( EXTR), First Solar ( FSLR), FormFactor ( FORM), General Growth Properties ( GGP), Georgia Gulf ( GGC), Green Mountain Coffee Roasters ( GMCR), Intrepid Potash ( IPI), LeapFrog Enterprises ( LF), Lincoln National ( LNC), MetLife ( MET), Onyx Pharmaceuticals ( ONXX), Prudential ( PRU), Smith Micro Software ( SMSI), Transocean ( RIG), Weight Watchers International ( WTW) and Williams Cos. ( WMB). Wednesday's economic calendar is a busy one. In addition to the FOMC decision at 2:15 p.m. ET, there's the Mortgage Bankers Association's weekly application index at 7 a.m. ET; Automatic Data Processing's employment change report for July at 8:15 a.m. ET; the Institute for Supply Management's manufacturing index for July at 10 a.m. ET; construction spending for June at 10 a.m. ET; weekly crude inventories at 10:30 a.m. ET and auto and truck sales for July throughout the day. And finally, True Religion Apparel ( TRLG) was a big mover to the downside after the closing bell after the Vernon, Calif.-based company lowered its financial forecast for the full year. It now sees earnings of $1.80 to $1.86 a share on revenue ranging from $450 million to $455 million for fiscal 2012, below Wall Street's current consensus view for a profit of $1.97 a share on revenue of $467.8 million. The stock was last quoted at $22.80, down 13.1%, on volume of less than 200,000, according to Nasdaq.com. Silicon Image ( SIMG), on the other hand, was surging in the extended session, advancing nearly 24% to $4.85 on volume of more than 120,000. The company blew past expectations, posting earnings of 5 cents a share on revenue of $63.8 million vs. the consensus estimate for a profit of 2 cents a share on revenue of $59.9 million in the June quarter. For the third quarter ending in September, Silicon Image forecast revenue of $73 million to $75 million vs. an estimate of $70.3 million. -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron.