After a rocky start to the earnings reporting season rattled U.S stocks, results from big banks, Google, Inc. and bellwethers such as General Electric Co. will help determine if markets find a smoother path next week.
Five members of the Dow Jones Industrial Average [$INDU] and 57 components of the S&P 500 [$SPX] report quarterly results during the week, which is shortened by the Martin Luther King Jr. Day holiday on Monday.
It's the start of two peak weeks of earnings, says Thomson Reuters, and by the end of it, investors should have a far better read of whether companies are able to deliver expectations built into the steep rebound in stock prices since early March.
As they have for the last few quarters, investors are focused on whether companies are increasing sales, not just raising profits by cuttings costs.
"The market is probably counting on at least some earnings leverage to become evident," said Bill Stone, chief investment strategist of PNC Wealth Management.
"Some sign of increasing revenues will likely be crucial," he said.
The quarterly reports start flying before the opening bell Tuesday, when Citigroup is expected to report a narrower loss. Releases from General Electric [GE] and McDonald's Corp. [MCD] cap the week Friday.
In between, investors will wade through a sea of results from regional banks, investment banks Goldman Sachs Group Inc. [GS] and Morgan Stanley [MS] , and technology heavyweights International Business Machines [IBM] , Advanced Micro Devices Inc. [AMD] , Google [GOOG] .
In general, earnings are expected to show a fantastic recovery from the hard-hit fourth-quarter of 2008. That's particularly true for banks.
Analysts expected S&P 500 earnings rebounded 186% in the December quarter from the year-earlier period. Any growth would mark the first earnings expansion for the index of large U.S. companies since the second quarter of 2007.
The financial sector's return to profit, after a year-ago loss, accounts for much of the triple-digit estimate for S&P 500 earnings growth.
Because financials have such a heavy weighting in the index, accounting for about 14% of the S&P 500's market value, stock investors are particularly sensitive to their performance.
"A powerful recovery is built into expectations," said Milton Ezrati, market strategist at Lord Abbett.
Plus, economists want to hear banks are lending more and curtailing bad loans as affirmation the economy is on firm ground.
Results in the past week showed that even some positive results, such as Intel Corp.'s [INTC] 's profit and sales gains, have a hard time offsetting a drip of disappointing data and reports.
Weekly wrap: tough start
Alcoa Inc. [AA] shares ended the week down 8.2%, their worse week since late October, after the aluminum producer kicked off the earnings reporting season late Monday with operating profits that fell short of Wall Street forecasts.
Then on Friday, financial stocks led the Dow average to its steepest one-day drop of the year after J.P. Morgan Chase's [JPM] revenue fell short of forecasts and its chief executive offered a glum outlook, citing still-high credit costs.
The Dow industrials ended the week 0.1% lower, the S&P 500 edged back 0.8% for the week and the Nasdaq Composite [COMP] slipped 1.3%.
Plus a handful of economic reports failed to deliver the punch many were expecting.
Jobless claims, retail sales and consumer sentiment readings all came in worse than economists had forecast.
Healthcare, utilities and consumer staples -- three sectors that tend to attract interest when investors start to get worried about the market - outperformed the broader market. They were the only sectors among the 10 S&P 500 industry groups to post weekly gains.
The bar has been set high for stocks this earnings season. Since its March lows, the S&P 500 has vaulted 70%, with prices bid up in anticipation an economic recovery would drive better earnings in the quarters ahead.
"We had a very good run in the market and we had a lot of expectations," said Ezrati. "People say --maybe we're a little more ahead of ourselves, maybe we should go more defensive."
Focus on the hill
Events in Washington could also sway investors. On Friday, top Democrats returned to the White House for another round of talks aimed at wrapping up health-care legislation.
Progress toward legislation hasn't been bad for the sector in recent months.
As of Friday, the stocks of 90% of 51 health-care companies in the S&P 500 were within 10% of 52-week highs, while more than four-fifths within 5% of that mark..
Financial stocks could also feel the pressure from legislators. Last week, President Barack Obama proposed a special 10-year fee on large financial companies and a federal commission harshly criticized the heads of the nation's biggest banks for their role in the 2008 financial crisis.
In the week ahead, investors will get a new round of data on the housing sector. Housing starts in December likely slipped while a homebuilders sentiment index probably stayed flat, MarketWatch's poll of economists forecasts.
The Philadelphia Fed's January report on manufacturing in the mid-Atlantic region is expected to show a drop from the prior month.
Five members of the Dow Jones Industrial Average [$INDU] and 57 components of the S&P 500 [$SPX] report quarterly results during the week, which is shortened by the Martin Luther King Jr. Day holiday on Monday.
It's the start of two peak weeks of earnings, says Thomson Reuters, and by the end of it, investors should have a far better read of whether companies are able to deliver expectations built into the steep rebound in stock prices since early March.
As they have for the last few quarters, investors are focused on whether companies are increasing sales, not just raising profits by cuttings costs.
"The market is probably counting on at least some earnings leverage to become evident," said Bill Stone, chief investment strategist of PNC Wealth Management.
"Some sign of increasing revenues will likely be crucial," he said.
The quarterly reports start flying before the opening bell Tuesday, when Citigroup is expected to report a narrower loss. Releases from General Electric [GE] and McDonald's Corp. [MCD] cap the week Friday.
In between, investors will wade through a sea of results from regional banks, investment banks Goldman Sachs Group Inc. [GS] and Morgan Stanley [MS] , and technology heavyweights International Business Machines [IBM] , Advanced Micro Devices Inc. [AMD] , Google [GOOG] .
In general, earnings are expected to show a fantastic recovery from the hard-hit fourth-quarter of 2008. That's particularly true for banks.
Analysts expected S&P 500 earnings rebounded 186% in the December quarter from the year-earlier period. Any growth would mark the first earnings expansion for the index of large U.S. companies since the second quarter of 2007.
The financial sector's return to profit, after a year-ago loss, accounts for much of the triple-digit estimate for S&P 500 earnings growth.
Because financials have such a heavy weighting in the index, accounting for about 14% of the S&P 500's market value, stock investors are particularly sensitive to their performance.
"A powerful recovery is built into expectations," said Milton Ezrati, market strategist at Lord Abbett.
Plus, economists want to hear banks are lending more and curtailing bad loans as affirmation the economy is on firm ground.
Results in the past week showed that even some positive results, such as Intel Corp.'s [INTC] 's profit and sales gains, have a hard time offsetting a drip of disappointing data and reports.
Weekly wrap: tough start
Alcoa Inc. [AA] shares ended the week down 8.2%, their worse week since late October, after the aluminum producer kicked off the earnings reporting season late Monday with operating profits that fell short of Wall Street forecasts.
Then on Friday, financial stocks led the Dow average to its steepest one-day drop of the year after J.P. Morgan Chase's [JPM] revenue fell short of forecasts and its chief executive offered a glum outlook, citing still-high credit costs.
The Dow industrials ended the week 0.1% lower, the S&P 500 edged back 0.8% for the week and the Nasdaq Composite [COMP] slipped 1.3%.
Plus a handful of economic reports failed to deliver the punch many were expecting.
Jobless claims, retail sales and consumer sentiment readings all came in worse than economists had forecast.
Healthcare, utilities and consumer staples -- three sectors that tend to attract interest when investors start to get worried about the market - outperformed the broader market. They were the only sectors among the 10 S&P 500 industry groups to post weekly gains.
The bar has been set high for stocks this earnings season. Since its March lows, the S&P 500 has vaulted 70%, with prices bid up in anticipation an economic recovery would drive better earnings in the quarters ahead.
"We had a very good run in the market and we had a lot of expectations," said Ezrati. "People say --maybe we're a little more ahead of ourselves, maybe we should go more defensive."
Focus on the hill
Events in Washington could also sway investors. On Friday, top Democrats returned to the White House for another round of talks aimed at wrapping up health-care legislation.
Progress toward legislation hasn't been bad for the sector in recent months.
As of Friday, the stocks of 90% of 51 health-care companies in the S&P 500 were within 10% of 52-week highs, while more than four-fifths within 5% of that mark..
Financial stocks could also feel the pressure from legislators. Last week, President Barack Obama proposed a special 10-year fee on large financial companies and a federal commission harshly criticized the heads of the nation's biggest banks for their role in the 2008 financial crisis.
In the week ahead, investors will get a new round of data on the housing sector. Housing starts in December likely slipped while a homebuilders sentiment index probably stayed flat, MarketWatch's poll of economists forecasts.
The Philadelphia Fed's January report on manufacturing in the mid-Atlantic region is expected to show a drop from the prior month.
