NEW YORK: This week’s rush of quarterly earnings announcements from icons like chip leader Intel Corp and banking titan Citigroup Inc may give the US stock market another jolt higher as Corporate America hints at an improving economy.
The next two weeks mark the most hectic period of the second-quarter earnings reporting season, and investors are betting the results will help justify Wall Street’s double-digit run-up since major market gauges hit 2003 lows on March 11.
“We have obviously rallied pretty strongly, and we just need confirmation that second-quarter earnings are going to catch up with the market,” said Joe Kalinowski, director of research at Puglisi & Co. “I anticipate we are going to have a pretty strong reporting season.”
But while stocks may trend higher, the rally could also lose some steam after its blistering surge over the past four months. Federal Reserve chairman Alan Greenspan is due to deliver his semi-annual monetary policy testimony before congress after the central bank said at the end of June that the US economy had yet to exhibit sustainable growth.
A stream of economic reports on retail sales, manufacturing activity, consumer prices, jobless claims and consumer sentiment will also test investor mettle in the coming days.
“Any price weakness that occurs is going to be viewed as a buying opportunity in the market, and I expect prices to trend higher over the next two weeks,” said Paul Cherney, chief market analyst of Standard & Poor’s. “But the upside is going to be limited.”
Twelve components of the Dow Jones Industrial Average and about 120 companies in the Standard & Poor’s 500 index are set to report their quarterly earnings this week and next.
The big names in the rush of companies posting results include Intel, Citigroup, Johnson & Johnson, Merrill Lynch & Co Inc, Motorola Inc, IBM Corp, Advanced Micro Devices Inc, Ford Motor Co, JP Morgan Chase & Co Inc and Microsoft Corp.
The volume of earnings warnings leading up to the reporting season had proved light, leading many market watchers to bet that corporate results would land in line with or better than expectations.
“I think, by and large, earnings will come in as expected to plus,” said Stanley Nabi, managing director at Credit Suisse Asset Management, which oversees US$292bil globally. “I don’t think they will be runaway, but they will be on the positive side.”
Wall Street analysts are expecting that S&P 500 companies will post earnings growth of 5.2% in the second quarter versus the same period last year, according to research firm Thomson First Call.
Meanwhile, the market is waiting to hear what Greenspan has to say about the US economy in his testimony before House of Representatives’ Financial Services Committee today and the Senate Banking Committee tomorrow.
In late June, investors were rattled by the Fed’s warning of possible deflation, a broad drop in prices that can depress earnings. The Fed also disappointed Wall Street with its decision to cut interest rates by only a quarter point.
“Any time Greenspan speaks, it’s important,” Kalinowski said. “I am sure everybody is going to be listening.” – Reuters