Next Week's Market Forces
By Matthew Freedman
4/13/01 12:00 PM ET
With earnings season in full swing, markets will be hopping after the Easter holiday.
Investors hunting for bargains will have a plethora of profit reports to peruse following Passover. Roughly 1,300 companies, many of which recently slashed earnings projections, will post first-quarter results next week. Poor year-over-year profit comparisons are a given for most. Firms need only meet Wall Street's reduced expectations to egg on the bulls after the long holiday weekend.
Companies in a broad array of industries will contribute to the deluge of announcements. The Nasdaq, which this past week posted its largest gain in ten months, will look especially to Microsoft, IBM, Intel, Apple, Sun, and eBay for guidance next week.
Blue-chip connoisseurs will collect reports from Coke, Sears, Gillette, Eli Lilly, Kodak, Merck, Philip Morris, Johnson & Johnson, International Paper, and Boeing. Financial behemoths Bank of America, Bank One, and Wells Fargo will also deposit their first-quarter earnings statements in investors' hands next week.
Meanwhile, BellSouth, Lucent, Nokia, Nortel, Oplink, and Sprint will call in their results, hoping beyond hope that healthy profit growth among energy interests such as Duke, El Paso, Occidental, USX-Marathon, and Sonoco will overshadow the telecom industry's woes and call forth a broad rally. Reports from Texas Instruments and Advanced Micro Devices could also chip away at the market's recent gains unless the semiconductor producers can provide some evidence of a turnaround in the overextended industry.
Though Corporate America will undoubtedly steal the show in the week ahead, several notable economic releases are due out. Housing starts data, which the Bureau of Census will release Tuesday, are expected to show only a slight moderation in residential building activity in March following two very strong months. Mortgage rates hovering below 7% have helped the housing market withstand weakness in the stock market and the broader economy.
The consumer price index and industrial production report are also due out Tuesday. In light of recent declines in wholesale and import prices as well as softening consumption, price pressures at the consumer level were likely subdued in March. A benign inflation situation strengthens an already strong case for further monetary easing going forward.
Industrial production likely declined a sixth consecutive month in March as manufacturers continued reducing capacity utilization. As the recently released business inventories report suggests, however, companies are successfully paring down their stockpiles of goods. With the inventory correction under way, industrial production may very well pick up in coming months.
Wednesday's trade deficit report will be important for currency markets, which are looking for direction in the wake of the European Central Bank's decision to hold euro-zone interest rates steady and a rare admission by the Japanese Cabinet Office that the country's economy is weakening.
Thursday's Treasury budget report takes on some added significance as bond traders look for signs that the Treasury will buy back more bonds this year than the $35 billion projected in the Bush administration's fiscal 2002 budget. A larger-than-expected government surplus could prompt additional buybacks, which tend to raise long bond prices and thereby flatten the yield curve.
This, in turn, would reinforce a trend seen this past week in which investors unwound positions taken recently on hopes that the Federal Reserve might cut interest rates prior to its next scheduled meeting on May 15. As a result of a wave of upbeat comments from Fed officials and some signs that equities have bottomed out, traders have now effectively ruled out a rate cut in April.
What is still unclear is whether this past week's rally in equities was the dawn of a recovery or merely a dead-cat bounce. Though refraining from calling a bottom in the market or making any forward-looking statements regarding individual stocks, the ever-elusive Easter Bunny has some words of wisdom for investors: don't put all your eggs in one basket. Otherwise, you may very well spend the second quarter the same way many spent the first - wiping them off your face. |
