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Tags: Earnings | Bernanke | Stocks | market

Earnings, Bernanke Promise Volatile Week for Stocks

Sunday, 15 July 2012 10:22 AM EDT

Investors are looking at an onslaught next week. If it's not corporate earnings, it's Ben Bernanke talking about economic issues before Congress.

Recent warnings from a number of companies, including chipmaker Advanced Micro Devices, helped drag the S&P 500 lower for six straight days before a Friday rebound.

The S&P 500 and Dow erased losses for the week, barely finishing higher by 0.2 percent and less than 0.1 percent, respectively. The Nasdaq composite fell 1 percent for the week.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

With a slew of companies set to report results next week, the hope among investors is that the bad news has been factored in, but the broader picture remains lackluster. That may limit the market's gains even if companies clear a low bar.

"Expectations have been beaten down a lot," said Robert Van Batenburg, head of equity research at Louis Capital in New York. "The problem is we're dealing with a global slowdown, and I'm sure that's going to be reflected in some of the comments you're going to be hearing."

Data showing slower growth in Europe, China and the United States has weighed on the stock market, while U.S. companies have warned about overseas weakness and a stronger dollar hurting profits on exports.

The minutes from the Federal Reserve's June meeting suggested it is not ready to inject more monetary stimulus into the economy, but traders will be hanging on Federal Reserve Chairman Ben Bernanke's every word for mention of such a possibility and how he views the slowing economy.

Next week dozens of Standard & Poor's 500 companies are to report. They run from top technology names, including Intel and Microsoft to General Electric and Coca-Cola Co.

Earnings estimates have already fallen sharply. S&P 500 earnings for the second quarter now are expected to rise just 5 percent from a year ago, down from an estimate of 9.2 percent at the beginning of April, according to Thomson Reuters data.

Nearly all sectors have seen estimates fall due in part to weak demand in Europe. Energy and utilities are expected to be the weakest performers this quarter after big declines in energy prices in the second quarter.

The fall in estimates could be enough so that the majority of companies end up beating expectations, as they typically do, inspiring a relief rally. That could bolster the S&P, where trading has narrowed to a range between 1,310 and 1,370 for most of a month.

Investors could see some downside surprises in high-end consumer companies, industrials and financials, said Paul Mangus, head of equity research and strategy for Wells Fargo Private Bank in Charlotte, in North Carolina.

For example, Bank of America Inc is expected to report earnings of 15 cents a share on Wednesday, but Thomson Reuters StarMine's SmartEstimates put expectations at 13.5 cents per share, or a miss of about 9 percent.

The technology sector could end up being a mixed bag, Mangus said.

"On one hand, there are very good trends on the software side. (But) there may be some disappointments among some of the hardware manufacturers. In certain cases, we're seeing some weak PC sales," he said.

Besides Advanced Micro Devices, a weak forecast was issued by fellow chipmaker Applied Materials this week, while engine maker Cummins Inc warned on sales. AMD reports results on Thursday.

Negative to positive earnings guidance for the second quarter is 3.3 to 1, the worst since 2008, Thomson Reuters data showed.

Among other S&P companies scheduled to report are Goldman Sachs, Citigroup and Johnson & Johnson.

The final details of a Spanish bank bailout are expected next week among developments in the 2 1/2-year old euro zone debt crisis.


Bernanke is due to deliver his semiannual monetary policy report to Senate and House committees on Tuesday and Wednesday, though analysts said he is not likely to divulge plans of further economic stimulus.

Stocks lost ground this week as minutes from the Fed's June meeting showed policymakers are open to the idea of more economic stimulus, but that conditions might need to worsen first. Investors were hoping the Fed's June minutes would suggest the central bank was getting closer to another round of stimulus.

"I don't think he's going to allude to any quantitative easing, so I don't think you'll get any solace from that," Van Batenburg said.

Bernanke is more apt to urge Congress to act on fiscal policy and tackle the issues of huge budget deficits and the impact on the economy of approaching sharp cuts in government spending known as "the "fiscal cliff."

"I would expect him to try to bring the message home to policymakers to address the fiscal cliff. Fiscal tightening flies in the face of any effort to dodge deflation."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

© 2023 Thomson/Reuters. All rights reserved.

Sunday, 15 July 2012 10:22 AM
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