US stocks could hit more speed bumps this week if the start of the third-quarter earnings season offers little evidence that the economic recovery is gaining strength.
With second-quarter earnings having been boosted primarily by cost-cutting,investors want to see if the latest quarterly results will show an improvement in revenues. That's a priority for investors because revenue growth is deemed a crucial indicator of consumer and corporate spending.
The aluminium company Alcoa Inc,a Dow component, is scheduled to report on Wednesday, marking the unofficial kickoff of the season. Other marquee names on the calendar are PepsiCo, Yum Brands Inc, Costco and Monsanto Co.
Investors are clamouring for more solid signs of economic stability after the Standard & Poor's 500 has climbed 51.5% from a 12-year closing low on March 9.
By that score, the latest quarterly earnings are a high-stakes endeavour,with investors saying to Corporate America:"Show us the money."
"Earnings have to be good enough to justify the run-up we've had," said William Rutherford, president of Rutherford Investment Management in Portland, Oregon."We haven't got all the problems solved by any means. We're still going to see bumps along the way."
Indeed, surprisingly weak economic reports last week gave investors a cold reminder that the recovery will not be without hitches, even with the massive stimulus from the government.
On Friday, the government's nonfarm payrolls report showed that US employers shed far more jobs in September than expected. The data put the stock bulls on the defensive. And this week could be just as daunting if there are few positive surprises.
The Dow slid 1.84% last week to close on Friday at 9,487.67, a second straight weekly loss after the indices hit 11-month highs in September. The Nasdaq sank 2.05% to 2,048.11 and the S&P slid 1.84%to 1,025.21.
Thomson Reuters data show that third-quarter earnings are forecast to drop 24.7% from a year earlier, a projection that gives companies a low hurdle to overcome following a surprisingly improved second quarter.
"The next big thing we're going to talk about is earnings," said Ryan Detrick,senior technical strategist at Schaeffer's Investment Research in Cincinnati."Usually after the first couple of days,you get a feel as to what the overall trend is going to be."
More takeover deals could also dictate this week's market action. A flurry of takeovers over the last two weeks has dominated the headlines as companies jostle to bolster their revenue streams in an uncertain economy.
"With many companies' growth challenged, we are seeing the tip of the iceberg in M&A," said Scott Billeaudeau, portfolio manager at Fifth Third Asset Management in Minneapolis.
Notable deals last week included Xerox's planned purchase of Affiliated Computer Services. And on Thursday,the Mexican brewer and bottler Femsa said it was in talks with several companies about a possible deal for its beer business.
The economic calendar is light. But today the spotlight will be on the Institute for Supply Management's September index of activity in the services sector.According to a Reuters poll of economists,the ISM non-manufacturing index, or services index, is forecast to have rebounded to 50.0 after hitting 48.4 in August.
Investors also will pay attention to monthly sales reports, due on Thursday,from major retailers to assess how consumers are faring as the job market remains weak.
Federal Reserve chairman Ben Bernanke will also be on centre stage with a scheduled speech on the central bank's balance sheet before a conference in Washington on Thursday.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment