Earnings to decide stocks' fate
NEW YORK: Earnings are set to take center stage again this week as more marquee U.S. companies line up to report their quarterly scorecards and investors decide whether to keep pushing stocks higher.
Investors will turn their attention to household names such as American Express Co (AXP.N), Apple Inc (AAPL.O), Boeing Co (BA.N), Coca-Cola Co (KO.N), McDonald's Corp (MCD.N) and Microsoft Corp (MSFT.O) to see what the earnings of these dominant corporations say about the U.S. economy's health.
The week's blitz of numbers will include earnings from 143 companies in the Standard & Poor's 500 Index (.SPX). Results from big manufacturers will give investors the broadest picture yet of the earnings season. So far, banks and technology companies have set the tone.
The week could start off on a strong note after a last minute tentative deal to help CIT Group Inc (CIT.N) stave off bankruptcy was reached on Sunday. The company, which lends to nearly one million small and mid-sized businesses, would receive $3 billion in rescue financing, a source close to the situation said.
The latest insight into corporate America's financial strength will come after last week's sharp gains, when the three major U.S. stock indexes rose 7 percent to wrap up their best week since the middle of March. Last week's rally was driven by much better-than-expected earnings from some major companies, including Intel Corp (INTC.O), International Business Machines Corp (IBM.N) and Goldman Sachs Group (GS.N).
The rally has driven stocks back up to near their highs in early June, when the S&P 500 peaked after climbing 40 percent from a 12-year closing low in early March -- only to lose ground later in the month before earnings season kicked off in early July.
For the past week, the Dow Jones industrial average (.DJI) gained 7.3 percent, while the S&P 500 climbed 7 percent and the Nasdaq Composite Index (.IXIC) jumped 7.4 percent.
"The equity market is the biggest leading indicator for the economy, so what we are going to be looking at is what kind of information is coming out of earnings," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
If some of those big names disappoint, it could be farewell to the rally. On Friday, a less-than-stellar performance from General Electric (GE.N) gave investors reason to be cautious about the potential strength of an economic recovery.
MESSAGE FROM 3M
John Murphy, fund manager at Murphy Capital Management in Gladstone, New Jersey, said investors will start to "look at some of the bigger manufacturing companies." He said 3M, which makes everything from "Post-it" notes to products for aircraft maintenance and has large international operations, will provide valuable insight.
3M is among 12 Dow components set to report earnings this week.
Data compiled last week by Thomson Reuters forecast a 35.2 percent drop in S&P 500 companies' second-quarter earnings from a year ago, compared with last week's expectation for a decline of 35.7 percent.
Of the 55 S&P 500 companies that have reported results so far, 71 percent beat analysts' expectations, 9 percent were in line with expectations and 20 percent were below estimates.
That is better than the long-term average, which is 61 percent of companies beating estimates in a typical quarter, 19 percent matching estimates and 20 percent missing Wall Street's expectations, according to John Butters, director of the research group at Thomson Reuters.
ALL EARS ON BERNANKE
In a week otherwise dominated by corporate earnings, Federal Reserve Chairman Ben Bernanke will appear on Capitol Hill twice to deliver his semiannual testimony on the U.S. economic outlook and monetary policy.
Investors will be listening to Bernanke for clues about when the Fed may deem the economy has switched to growth mode, as well as for an exit strategy after the central bank purchased billions of dollars in U.S. Treasury securities in a bid to keep interest rates low -- a move known as quantitative easing.
Bernanke will appear on Tuesday before the House Financial Services Committee and then on Wednesday, he is back on the Hill to appear before the Senate Banking Committee. Both sessions are set to start at 10 a.m. EDT.