Wall St Week Ahead-Flat to down on key results, data
By Haitham Haddadin
NEW YORK, Aug 12 (Reuters) - Stocks are likely to tread
water or decline this week as investors brace for a few
earnings reports from key companies and take cues from a heavy
economic calendar that includes weak July retail sales.
Traders also are seen stepping lightly this week in the
run-up to the Federal Reserve's policy-making meeting on
Tuesday, Aug. 21. The U.S. central bank is expected to cut
interest rates by a quarter-percentage point that day.
"People are looking at the Fed as really having the best
crystal ball out there," said Howard Kornblue, portfolio
manager at ING Pilgrim, which oversees about $18 billion.
"I would expect the market to remain very much in a very narrow
trading range until we get the Fed meeting out of the way."
The market could rally if Fed Chairman Alan Greenspan sees
signs of economic improvement, Kornblue said.
"But, it's a double-edged sword," Kornblue said. "If he
throws cold water on this outlook, that would result in the
market continuing to either be dormant or trend downwards."
A number of big companies report earnings this week,
including home improvement retailer Home Depot <HD.N>,
retailing giant Wal-Mart Stores Inc. <WMT.N>, top computer-chip
equipment maker Applied Materials <AMAT.O>, computer maker
Hewlett-Packard <HWP.N>, and communications equipment maker
Ciena Corp. <CIEN.O>.
Investors will pay close attention to corporate profit
forecasts. And the future doesn't look too bright, pundits say,
as the sluggish U.S. economy is yet to show any real signs it
could rebound.
"The market ... over the next several weeks will have a
downward bias," said Stanley Nabi, managing director at Credit
Suisse Asset Management, which oversees $110 billion.
"There is hope that maybe the profit picture for the third
quarter, which will begin to be pre-announced, will be a little
bit better than the second quarter," Nabi said. "My figures
tell me that the third quarter will be as bad, or worse."
On Friday, blue-chip stocks rallied, reversing deep morning
losses, as good wholesale-level inflation data was viewed as
paving the way for more rate cuts. But the tech-laden Nasdaq's
small drop was enough to put it at a four-month closing low.
The blue-chip Dow Jones industrial average <.DJI> jumped
117.69 points, or 1.14 percent, to 10,416.25. The Nasdaq
composite <.IXIC> fell 6.85 points, or 0.35 percent, to
1,956.47, its lowest close since April 17. Year to date, Dow is
down 3.4 percent, and Nasdaq is 20.8 percent lower.
"It's not an interest-rate problem, it's an inventory
problem, an oversupply problem and massive (telecom)
overbuilding problem," said Donna Van Vlack, director of
trading at the $7 billion Brandywine Asset Management. "I don't
think the market is out of the woods at all. This will take a
long time to heal."
Her short-term outlook?
"I'd say it will be more of the same," Van Vlack said. "You
get a spurt, then decay. We continue to be range-bound on
diminished volume."
JULY RETAIL SALES DEEMED CRUCIAL
As the second-quarter corporate earnings reporting season
winds down, investors also will focus on picking apart a number
of economic reports that could influence trading.
Key among those is the July retail sales report due on
Tuesday ahead of the market's opening. That data will give an
indication as to whether the last pillar of strength, the
American consumer, continues to spend or shuts the wallet.
"People are expecting (a) decline, but if that decline
comes out much larger, then that is going to scare people,"
said ING Pilgrim's Kornblue. "Consumer spending counts for a
big chunk of the economy, and has really been the strong point
in the economy. So if it appears that the consumer is finally
starting to maybe pull in his horns, that might put a damper on
people's courage."
Households already have started receiving tax-rebate checks
from the U.S. government, which the pundits say could help fuel
a rally down the road as people spend that money.
But for now, the retail sector looks under a cloud.
Economists polled by Reuters expect a decline of 0.2 percent in
the July sales figures, compared with a gain of 0.2 percent in
June.
"We are going to have a negative back-to-school retail
environment and a negative Christmas sales environment," Credit
Suisse's Nabi said. "Also, there's absolutely no sign of prices
in technology or telecom stopping their erosion ... like
semiconductor prices or things of that nature. That, in itself,
is very negative, not only to profits, but to revenues."
JULY CPI AND LOTS MORE DATA
On Wednesday, June business inventories are due ahead of
the market's open. July figures for U.S. industrial production
and capacity utilization, two indicators closely watched by the
Federal Reserve chairman, also will be released on Wednesday.
Thursday is chock full of data, including the July U.S.
Consumer Price Index or CPI, a key gauge of retail level
inflation, and July housing starts.
Weekly jobless claims will be released on Thursday
concurrently with the CPI report, ahead of the market's open.
Wall Street is keeping a closer eye on the number of Americans
filing for first-time jobless benefits as a harbinger for the
monthly unemployment rate, a key gauge of the economy's
underlying health.
Friday brings a preliminary reading from the University of
Michigan on August consumer sentiment, another widely watched
report, and the June international trade report.
Investors now see drastic layoffs, such as telecom
equipment maker Lucent Technologies Inc.'s <LU.N> announcement
it will lay off 15,000 to 20,000 employees, as a sign things
are getting worse.
"There's a whole new round of recession-type strategies
being employed by Lucent" and others, said Ned Riley, chief
investment strategist for State Street Global Advisors, which
manages about $720 billion.
"There's a feeling that the
unemployment rate will go up even more, hurting stock values
and eroding the wealth that people had been relying on."
((--Wall Street Desk, 646 223 6114,
haitham.haddadin@reuters.com))
REUTERS
*** end of story *** |
