Wall St Week Ahead-Stocks to gain with profits
By Chelsea Emery
biz.yahoo.com
(Repeating column that originally ran late Friday)
NEW YORK, July 28 (Reuters) - Corporate scandals have battered U.S. equities markets recently, but investors should start nibbling at stocks again this week as the corporate earnings season wraps up.
"A lot of the negativity is out of the way and we're seeing very good earnings reports," said James Luke, fund manager at BB&T Asset Management, which oversees $10 billion. "We're due for a bounce."
Market pundits have been pining for a rebound for weeks, as the Nasdaq composite index (NasdaqSC:^IXIC - News) has slid 12 of the past 14 weeks amid reports of misleading balance sheets and accounting methods.
But investors are sensing some resolution after the high-profile arrests of five former executives at bankrupt cable operator Adelphia Communications Corp. (Other OTC:ADELQ.PK - News). Adding to optimism is the U.S. Securities and Exchange Commission's Aug. 14 deadline for top executives to start swearing their companies' reports are accurate.
Improving earnings have also helped. Profits of companies in the Standard & Poor's 500 index (CBOE:^SPX - News) grew an average of 4.3 percent from the same quarter a year ago, according to market research firm Thomson First Call. What's more, they have beaten analysts' expectations by about 1.9 percent.
"People will reassess what companies reported and make their bets on that basis," said Tim Woolston, a fund manager for Boston Advisors Inc. "My sense is (stocks) will go a little higher."
Wall Street will scrutinize the latest consumer confidence figures for July, expected on Tuesday, for signs American consumers will continue to spend. It's an important indicator because consumer spending underpins two-thirds of U.S. economic activity.
Also on the docket are preliminary data on U.S. gross domestic product
For the week, the Nasdaq dropped 4.3 percent, while the S&P 500 added 0.6 percent and the Dow Jones industrial average (CBOT:^DJI - News) climbed 3.1 percent.
For the Dow, it was the largest weekly percentage gain since mid-May. Also, for the Nasdaq, it was the fourth losing week in a row and the 12th down week out of the last 14.
Cereal maker Kellogg Co. (NYSE:K - News), oil giant ChevronTexaco Corp. (NYSE:CVX - News) and entertainment conglomerate Walt Disney Co.(NYSE:DIS - News) are among the companies expected to report quarterly results, coming in at the tail end of the earnings season.
Also, look for oil company Exxon Mobil Corp. (NYSE:XOM - News) to report results, as well as insurer Aetna Inc. (NYSE:AET - News).
THE WRENCH, AND DATA EXPECTATIONS
There is a wrench that could temporarily halt the gears of a market recovery, however. Corporations may rush to lower previous forecasts before the deadline passes for executives to sign off on financial reports.
"To the extent you get some key companies taking that kind of action, that could really give us a final bottom," said Luke, who said the most likely companies to cut estimates include cable and telecommunications firms that have high debt and companies that have grown mainly by buying other companies.
"Cisco Systems Inc. (Nasdaq:CSCO - News) would be a potential candidate," he said.
But there is also a sense much of the possible bad news is already factored into stocks.
"I don't see it having an impact," said Todd Leone, head of listed stock trading for SG Cowen Securities. "They're going to sign it and if they want to lie, they'll lie."
Instead economic data will be more significant, traders said.
"Consumer confidence is a really important number," said Ayako Tsuboya, a trader for Daiwa Securities Inc. "When the stock market was really good, people thought they were rich. Now stock values are low and they realize they aren't rich. So they may stop spending money."
The confidence index, as tabulated by the Conference Board, is expected to fall to 102.5, according to economists surveyed by Reuters, from the previous month's level at 106.4.
The unemployment rate will also be closely watched because more people out of work could mean slower spending on goods and services, further hurting corporate profits.
The unemployment rate is expected to have stayed steady at 5.9 percent in July from the month before, according to analysts.
Other important data include a preliminary reading of second-quarter GDP, which economists expect to come in at 2.5 percent, down from 6.1 percent in the first quarter.
While traders and fund managers said they saw stocks ticking higher in the short term, they say there's one thing that would make them nervous: extremely sharp, fast gains.
"I don't want to see us take off to the races," Woolston said. "I want to see the market inch up in the face of skepticism. Otherwise markets will rally too hard, too fast, in an unsustainable fashion."
Good post on your part. One good thing from the bull perspective is the rate of insider selling is slowing Michael.
RtS |
