Wall Street on edge as earnings season nears
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- July 4, 2008
Wall Street heads into a key corporate earnings season with sentiment hammered amid a record surge in energy costs that has dampened prospects for an economic recovery.
In the holiday-shortened week, the Dow Jones Industrial Average shed 0.5% to 11,288.54 ahead of the July 4 Independence Day holiday. The blue-chip index was pounded in June with a 10.2% loss.
The tech-dominated Nasdaq lost 3% for the week to 2245.38 while the broad-market Standard & Poor's 500 index shed 1.2% to 1262.90.
The Dow and Nasdaq are now firmly in ``bear market'' territory, down more than 20% from their highs from last October, with the S&P not far off.
While many analysts say the market is oversold due to poor sentiment, few see any catalysts that could spark a quick rebound.
The first test comes in the upcoming week with quarterly results from General Electric, seen as a barometer of the overall economy, and key manufacturers including Alcoa and chipmaker Intel.
Marc Pado, analyst at Cantor Fitzgerald, said the market will be on edge from results later in the month from the banking sector, which has been whipsawed by the national housing meltdown and the related credit squeeze.
"Until we get those banks out of the way, the market isn't going to pay too much attention to other companies' earnings,'' he said.
"It really needs to see where we stand with the credit crisis first and then they'll focus on the industrials, the retailers, the technology firms.''
But even with positive corporate news, Pado said the leap in oil prices could prevent any rally from taking hold.
"When crude climbs and makes records every day, the market cannot focus on the economic news or anything else,'' he noted.
Myles Zyblock at RBC Capital Markets said the market is expecting a 10.3% decline in overall earnings for the S&P 500 firms, but that this will be the low-water mark: "Growth for the third and fourth quarter are expected to be up by 14 and 61%, respectively,'' he said.
Zyblock noted that "the runaway oil price and ongoing credit contraction'' is expected to keep anxiety high.
"The rocky ride experienced over the past few weeks could be with us for the remainder of the summer months,'' he added.
Nigel Gault at Global Insight said the economy held up better than expected in the first half, ekeing out modest growth, but he is unsure about the outlook.
"The outlook for the rest of 2008 and early 2009 is darkening, not least because of the seemingly relentless rise in commodity prices,'' he said. "We now expect oil, food, and raw materials costs to keep rising through the middle of 2009.''
Gault said the government's fiscal stimulus of $US168 billion will soon wear off and that could sink the economy if consumers retrench.
"Our revised forecast contains both weaker growth and higher inflation,'' he said, noting that the Federal Reserve appears stuck between trying to stimulate a weak economy and combatting price-rises.
"The Fed is caught between rising inflation, on the one side, and still-anemic growth and a financial crisis that it cannot declare over, on the other side.''
Some analysts say the market may be ready to "bottom'' in anticipation of an economic recovery, while others say it is too soon.
"We just don't see enough evidence that a sustainable low will be seen in the days ahead,'' said Sam Turner at Riverfront Investment Group.
"We'll have to take this one week at a time, but we suspect the relief rally we were looking to develop may be weeks away, not days away. Until then, we maintain the opinion that traders should keep their powder dry and let this play out.''
Bonds got a lift from the stock market's troubles. The yield on the 10-year Treasury bond fell to 3.973% from 3.990% a week earlier and that on the 30-year bond eased to 4.531% from 4.537%. Bond yields and prices move in opposite directions.
AFP
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