By Nick Godt
With mixed reports from bellwethers denting enthusiasm for the
rally in stocks, investors await one of the busiest weeks of the
third-quarter earnings season hoping that key results will not only
top estimates, but show improving sales, and provide upbeat
outlooks.
With just 61 S&P 500 companies having reported earnings so
far, 79% have topped analysts' expectations, 11% have matched, and
10% have come in below expectations, according to Thomson
Reuters.
And third-quarter S&P 500 earnings are now expected to be
down 22.6% year on year, a slight improvement from expectations of
a 24.6% last week, thanks to upbeat results from JP Morgan Chase
(JPM), Citigroup (C) and Goldman Sachs (GS).
But after a good start to the week, the market took a hit Friday
after results from Bank of America (BAC), IBM (IBM) and General
Electric Co. (GE) disappointed investors.
"When you're in a market that has had a nearly 60% upward move,
everything has to go right," said Hugh Johnson, chairman of Johnson
Illington advisors. "To me, GE was especially disappointing on its
sales as its results still reflect global economic conditions to a
large degree."
On Friday, the Dow Jones Industrial Average (DJI) fell 67
points, or 0.7%, to 9,995, weighed down by drops of more than 4% in
shares of Bank of America, IBM and GE.
The Dow traded above the 10,000 mark on Wednesday for the first
time since October 2008.
The S&P 500 index (SPX) slipped 8 points, or 0.8%, to 1,087,
and the Nasdaq Composite (RIXF) lost 16 points, or 0.8%, to
2,156.
For the week, the Dow still rose 1.3%, the S&P 500 gained
1.5%, and the Nasdaq rose 0.8%.
"Earnings need to come in better, and in some cases,
much-better-than-expected, for the market to continue powering
ahead," said Michael Sheldon, market strategist at RDM.
Sheldon noted that the strong results from Intel (INTC), JP
Morgan and Google (GOOG) over the past week were met with moderate
enthusiasm. Goldman Sachs Group, however, whose results, while
above expectations, didn't beat by as much as in the previous
quarter, saw its shares pummeled by the market.
"You can't blame investors, as Goldman's stock has tripled from
its lows," Sheldon said. "In this environment, we need to get all
the right things to keep investors excited."
Next week, another 75 S&P 500 companies are due to report
earnings, including 11 Dow components.
"More investors' attention will be paid to the cyclical
companies that have led the rally so far," Sheldon said. "Any
disappointment could lead to significant profit taking."
Among the highlights next week will be results from Apple Inc.
(AAPL) due after the close of trading on Monday.
Tuesday will bring, among others, Coca-Cola Co. (KO), Dupont
(DD), Pfizer Inc. (PFE) and United Technologies Corp. (UTX).
Wednesday brings results from Boeing Co.(BA), Freeport McMoRan
(FCX), Morgan Stanley (MS), and Wells Fargo (WFC).
On Thursday, results are expected from 3M Co. (MMM), AT&T
Inc. (T), Credit Suisse Group (CS), Dow Chemical Co. (DOW),
McDonald's (MCD), Merck (MRK), and Travelers Cos. (TRV).
On Friday, results from Microsoft Corp. (MSFT) are due.
Dow 10,000
After hitting the key 10,000 mark in the past week for the first
time in over a year, the market is now looking for good reasons to
push higher, according to Johnson of Johnson Illington
Advisors.
"We're in a market that's reflecting deepening concerns about
valuations. It's going to be a trendless market until we know what
sales and earnings are really going to look like this earnings
season and get some visibility for next year," he said.
While economic data is expected to take a backseat to earnings
next week, some reports could still move the market. On Monday, the
National Association of Home Builders is due to post its October
housing market index.
Tuesday brings the September producer price index and September
housing starts and building permits. On Wednesday will be the
Federal Reserve's Beige Book of economic conditions. Thursday
brings weekly jobless claims and September leading indicators.
On Friday, existing home sales data for September is
expected.