Wall St Week Ahead-All eyes on earnings, FOMC secondary
By Brendan Intindola
NEW YORK, June 24 (Reuters) - Stocks will likely move sideways next week, as the Federal Reserve's expected interest-rate cut won't offset chronic worries about sagging corporate profits.
So despite a heavy calendar of economic reports and the Fed's two-day Federal Open Market Committee meeting ending Wednesday afternoon, the bottom line for stocks next week is literally that -- what companies are earning and whether there any signs the slide in profit is coming to an end.
Also, investors will be watching closely any news over the weekend regarding a rise in Middle East tensions. The United States put its military forces in the Gulf on the highest state of alert Friday, citing a threat of a possible attack by anti-American guerrillas. News of the alert, which came near the close of the day's trade, had little impact on equities, but crude oil prices rose on the news.
LOOKING FOR BOTTOM
``What investors are looking for is the bottom. They want people to say, 'Orders are at their low, and it is going to go up from here,''' said Uri Landesman, chief investment officer with AFA Management Partners LP, Greenwich, Connecticut.
``And that is when they step into this market. Until that happens, rates alone are not going to be enough to sustain a rally,'' he said.
Given the recent trend of profit warnings -- including last Friday's stunning admission by drug giant Merck & Co Inc. (NYSE:MRK - news), pillar of defensive investing -- the market is not optimistic about a near-term resumption of the late 1990s strong profit growth.
The Federal Reserve is is expected to cut interest rates by least a quarter-percentage point at its June 26-27 policy meeting as it continues its effort to prop up the economy.
It would be the sixth rate cut this year from the central bank, which has already lowered borrowing costs by 2-1/2 percentage points, cutting the federal funds rate to 4.0 percent.
Last week, stocks ended mixed, with financials and consumer stocks rising, and technology, basic-material and energy-related named dropping. Had it not been for Merck's 9 percent decline to a three-month low on Friday, the Dow Jones Industrial average would have edged higher for the week.
EXPECT ``50 BITS'' FROM THE FED
``We need 50 bits (basis-point rate cut from the Fed), and we will get it. But, what I am really paying attention to is corporate earnings, and if any of these reports have any good news,'' said Uri Landesman, chief investment officer with AFA Management Partners LP.
In the technology sector, 3Com Co (NasdaqNM:COMS - news) is scheduled to report fiscal fourth quarter earnings after the market close on Tuesday, along with beleaguered handheld electronic device maker Palm Inc.(NasdaqNM:PALM - news)
Both are among the legion of companies that in recent weeks have told investor to lower their financial expectations.
On Thursday, NIKE Inc. (NYSE:NKE - news) and FedEx Corp. (NYSE:FDX - news) report quarterly results.
``I don't think it (the FOMC decision) really matters though, what really matter is where is the payoff (from previous rate cuts)? Are we going to see the end of the profit recession? And the signs so far is that there is no end in sight,'' said Hugh Johnson, chief investment officer at First Albany Corp, Albany, N.Y.
``You now have to wait until September until you see or hear the good news, the sign of the end of the profit recession,'' he said, adding that he expects a modest rise for equities through the summer.
RETROSPECTIVE DATA
``I am not expecting any real good news out of the economic indicators yet. I think the corporations are further looking. The government is always trailing, and there is nothing good trailing, that I can tell you,'' Landesman said.
Leading off a week packed with economic data is the National Association of Realtors existing homes sales for May, which is expected to slip to 5.15 million annual rate rate from the previous reading of 5.20 million.
Among the week's most widely watched data item is the Conference Board's June consumer confidence reading.
According to a Reuters poll of economists, confidence probably deteriorated in June as Americans, recently more upbeat about prospects for an economic recovery by year's end, reeled from a weak job market and a stock market struggling to gain ground.
The gauge is expected to slip to 114.2 in June following a rise to 115.5 in May, according to the poll. The index hit a four-year low of 109.2 in February, and was at 139.2 a year ago.
The Conference Board, a New York-based private research group, is scheduled to release the data on Tuesday at 10:00 a.m. EDT (1400 GMT).
The FOMC starts its two-day meeting Tuesday, and the Fed's policy-setting group is expected to announce its decision regarding any interest-rate change shortly after 2:00 p.m. EDT on Wednesday.
Closing the weak will be the final reading of first-quarter U.S. gross domestic product, expected to be 1.2 percent, down from the previous 1.3 percent. |
