(Corrects penultimate paragraph to show European leaders are
meeting this week, not finance ministers)
NEW YORK, Oct 12 (Reuters) - Earnings season is heating up,
but investors' feet are getting cold.
Central bank-fueled gains took markets within reach of
five-year highs in September, but now U.S. stock market
participants are shifting their focus back to corporate
outlooks, and the picture is not pretty.
Early earnings reports have underlined those concerns, which
may be exacerbated when dozens of major companies - including
Dow components General Electric, Microsoft Corp
and International Business Machines Corp - report next
week.
"Caution is definitely the operative word as Europe and
China look to continue dragging on earnings," said Michael
Loewengart, director of investment strategy at E-Trade Financial
in New York. "The overall tone is so pessimistic that we may see
some upside surprises, but we could still suffer considerable
losses if the news is bad."
Profits of S&P 500 companies are seen dropping 3
percent this quarter from a year ago, the first decline in three
years, hurt by China's slowing growth and Europe's debt crisis,
which recently prompted the International Monetary Fund to cut
its 2012 economic growth outlook.
Financial stocks will be especially in focus, with Bank of
America Corp, Citigroup Inc, Goldman Sachs Group
Inc and Morgan Stanley all set to report.
Results on Friday from JPMorgan Chase & Co and Wells
Fargo & Co generated some caution about the group
despite both reporting stronger-than-expected profits. Wells
Fargo posted disappointing revenue and a bigger drop in net
interest margin than had been anticipated.
Wells Fargo shares slumped 2.6 percent to $34.25 while
JPMorgan lost 1.1 percent to $41.62 despite bullish commentary
about the housing market.
"We need to see big banks doing well, and JPMorgan or Wells
didn't give us the boost we were hoping for," said Wayne
Kaufman, chief market analyst at John Thomas Financial in New
York. "Citigroup is the one we're looking for. If profits come
in worse than expected there, that would make me more bearish
about the economy in general."
FEWER COMPANIES BEAT THE STREET
With only 6 percent of S&P 500 companies having reported, 59
percent of companies have topped profit expectations - less than
the average beat rate of 67 percent for the past four quarters,
according to Thomson Reuters data. Half of companies have beaten
on revenue, while a quarter missed profit forecasts.
"We need to see the beat rate pick up well into the 60s if
we want the market to have any support," Kaufman said.
The S&P 500 fell 2.2 percent this week, its biggest
weekly percentage drop since June, on caution about the season
after a number of bellwethers cautioned on their outlooks,
including Chevron Corp and Alcoa Inc.
Profits are being dragged down by material and
energy stocks. Material sector earnings are seen
dropping 24 percent, and energy sector results are expected to
slide 19 percent.
In contrast, aggregate profit growth for financials
is seen up 1.6 percent.
Trading could be especially volatile in the Nasdaq, with a
number of tech titans on tap, including Microsoft, Google Inc
, IBM and Intel Corp, which recently cut its
outlook.
"Tech results can be a good proxy for business spending,
which will give us a sense of how companies are viewing the
future," said John Carey, portfolio manager at Pioneer
Investment Management in Boston.
Carey, who helps oversee about $200 billion in assets, said
outlooks were still too optimistic, "so I've pulled in my horns
a bit, and have become more defensive."
BLUE CHIPS, GREECE AND DATA
McDonald's Corp, UnitedHealth Group and
Johnson & Johnson are also scheduled to report earnings,
along with General Electric, which E-Trade's Loewengart said
would be particularly watched, given the company's diversified
operations.
Trading will also be influenced by the news flow in Europe,
where a summit of European Union leaders will take place. The
Wall Street Journal reported that a deal on austerity measures
for Greece could be reached in time for the meeting.
In the realm of U.S. economic data, investors will look
ahead to reads on retail sales, the Consumer Price Index and
existing home sales. September retail sales are seen rising 0.8
percent, while the overall CPI for September is expected to gain
0.5 percent, and September existing home sales are forecast to
fall 2 percent, according to economists polled by Reuters.
(Wall St Week Ahead runs every Friday. Questions or comments
on this column can be emailed to:
ryan.vlastelica(at)thomsonreuters.com )
(Editing by Jan Paschal)
Source: http://news.yahoo.com/corrected-wall-st-week-ahead-investors-turn-wary-174846731--sector.html
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