Wall St Week Ahead-Earnings, Bali blasts to hit stocks
Sunday October 13, 6:09 pm ET
By Nick Olivari
biz.yahoo.com
(Updates with potential effect of Bali blast in new paragraphs 2, 3, and 15)
NEW YORK , Oct 13 (Reuters) - With third-quarter earnings reports flooding the market this week, money managers expect stocks to decline after last week's blistering two-day rally -- unless there's a glut of positive surprises.
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Adding to the anxiety on Wall Street is news of bomb blasts that ripped through nightclubs late Saturday night on Indonesia's famous resort island of Bali, killing at least 183 people. The explosions are suspected to be terror attacks similar to last year's Sept. 11 attacks on the United States.
"This just adds another log on the fire to make people concerned," said James Volk, managing director of equity trading at D.A. Davidson and Co. in Portland, Oregon. "The market won't go down because of this (blast), but it could go down because we've had a nice rally and here's another thing to make us nervous."
The Standard & Poor's 500 index (CBOE:^SPX - News) is in the deepest bear market since 1938 -- and money managers see little on the horizon to reignite investor interest in stocks in the long term.
Among the S&P 500 index companies, about 49 have reported earnings so far, according to Thomson First Call, with profits growing an average 5.4 percent.
The sample is small, but it's in line with the 5.5 percent profit growth expected when all 500 companies have reported. And since firms beating expectations are on par with historical patterns, it's unlikely to improve, according to Thomson First Call.
"I believe we are under some pressure as companies are getting their third-quarter reports out and since the quarter was tough, investors are looking to make changes" to their investments, said Joe Stocke, managing director at StoneRidge Investment Partners LLC, based in Malvern, Pennsylvania, which oversees $515 million in assets.
"Good news on Iraq, earnings or the economy would help, but there is nothing out there right now," he said.
EARNINGS SEASON
This week about 150 S&P 500 companies are scheduled to report earnings, making it one of the busiest two weeks for the quarterly earnings season.
Among eagerly anticipated results are those from health-care products maker Johnson & Johnson (NYSE:JNJ - News), Intel Corp. (NasdaqNM:INTC - News), the world's largest chip maker, and No. 1 automaker General Motors Corp (NYSE:GM - News) -- due on Tuesday.
Other big tech names to report earnings this week include International Business Machines Corp. (NYSE:IBM - News), the world's largest computer company, on Wednesday and No. 1 software company Microsoft Corp. (NasdaqNM:MSFT - News) on Thursday.
Appliance maker Maytag Corp. (NYSE:MYG - News) and several financial companies, including Wells Fargo & Co. (NYSE:WFC - News), also report results this week.
"As more earnings come out, it will give a clearer picture of where the market is going, but it will not be exuberant," said Howard Kornblue, a money manager overseeing $100 million from Scottsdale, Arizona, for the Merrill Lynch private client group.
"The best we can look forward to is that the market stabilizes from the volatility seen in the last few months."
But volatility may be the name of the game for awhile, especially in the wake of this weekend's news of the bomb blasts in the nightclubs of Bali. The explosions killed at least 183 revellers, mostly foreign tourists. There were no publicized claims of responsibility or obvious clues to the identity of the perpetrators, but fingers were pointed at Osama bin Laden's al Queda network, which has been blamed for the Sept. 11, 2001, attacks on the United States.
The Standard & Poor's 500 index fell to a new closing low on Monday, making this the deepest bear market since the downturn that lasted from March 1937 to March 1938. The decline extended the mauling to 31 months. It was already the longest bear market since the 41-month downturn of November 1938 to April 1942.
But stocks soared in the second half of the past week, propelling the major indexes to close higher for the first time in seven weeks, as optimism swirled around the earnings outlook for bellwether stocks like IBM and General Electric Co. (NYSE:GE - News). IBM rose after a bullish analyst call on Friday, while GE gained after forecasting solid earnings growth for next year.
For the week, the Dow Jones industrial average (CBOT:^DJI - News) and the Standard & Poor's 500 index (CBOE:^SPX - News) each surged 4.3 percent, while the Nasdaq Composite Index (NasdaqSC:^IXIC - News) jumped 6.2 percent.
HISTORICAL OPTIMISM
With the unexpected rally after weeks of gloom, investors are hoping that historical trends hold true after the S&P 500's drop of 17.6 percent in the third quarter, the 13th worst on record and the worst since the fourth quarter of 1987.
Since World War II, the S&P 500 index has always gained within 12 to 24 months of a 15 percent quarterly decline, according to Ned Davis Research Inc.
In fact, a year after a catastrophic quarter, the S&P 500 was up on average 21.8 percent within a year and, within two years, it had gained on average 41.8 percent.
But at least one money manager remained unconvinced that history would repeat itself.
"I have a difficult time with this kind of analysis," said Tim Ghriskey, head of Connecticut-based Ghriskey Capital Partners LLC. "It's just historical percentages and does not reflect the fundamentals of today."
This week, investors face a slew of new economic data that could sap any optimism that the economic recovery is strengthening without risk of higher prices.
Among reports scheduled for release are August business inventories from the Commerce Department on Tuesday. Data is expected to show inventories rose for a fourth straight month as companies stockpiled goods on a bet the economy is improving.
Reports on housing starts, building permits, industrial production and capacity utilization are expected on Thursday, with the closely watched U.S. consumer price index on Friday.
Economists polled by Reuters are expecting CPI to have risen 0.2 percent in September. Excluding food and energy costs, the core CPI rate is also expected to have climbed 0.2 percent. |
