What's ahead for the stock market

There will be more fallout from the SEC's fraud charges against Goldman Sachs. But expect good earnings from Apple, Coca-Cola, AT&T, McDonald's and others.

By Charley Blaine Apr 16, 2010 8:03PM

Charley BlaineUpdated: 9:30 p.m. ET, 4/16


Until Friday, there was much to like about the stock market.

The Dow Jones industrials ($INDU) and the Standard & Poor's 500 Index ($INX) pushed through the psychologically important 11,000 and 1,200 levels, respectively. Intel (INTC), CSX (CSX) and JPMorgan Chase (JPM) had reported wonderful earnings and basically said the recession was dead, long live the recovery.

Then, on Friday morning, the Securities and Exchange Commission ended the rally when it charged Goldman Sachs (GS) with fraud in the marketing of an investment vehicle based on subprime mortgages.

Which means next week is likely to be nerve-racking.

Goldman, whose shares fell 12.8% to $160.70 on the news, will weigh on the market on Monday for sure -- and on Tuesday, after it reports its first-quarter results.

But another issue is the fallout from the market disappointment with Google's (GOOG) earnings on Thursday.

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Yes, Google beat the Street's official estimates. But Wall Street had bid the shares up to nearly $598, the highest level since January, expecting more.

When the results came up short, the hot money got out, driving the stock down 7.6% to $550.15 on Friday. Some 12.4 million Google shares were traded, four times the daily average.

And the steepness of both Goldman's and Google's declines feeds into the worry that a correction has started. The S&P 500 ended the week unable to hold 1,200. The Dow briefly dropped below 11,000 Friday, but it still ended down 126 points, and there was selling into the close, probably not a good sign for the week following.

Article continues below.

So, here's how the week should play out, starting with earnings.

Monday: Earnings are due from Citigroup (C), Arch Coal (ACI), Halliburton (HAL), Hasbro (HAS) and Zions Bancorp (ZION). Citigroup and Zions will grab the most attention. The critical question is whether their credit card, mortgage and commercial real estate portfolios are healthy.

Tuesday: Goldman Sachs will report before the open. There will be plenty of talk about whether the investment bank is guilty of the SEC charges. Regardless, analyst Dick Bove of Rochdale Securities thinks the stock is a buy, even if it has to give up $2 billion in penalties. The consensus is that Goldman will report $4.07 a share in earnings, up 21% from a year ago.

Tuesday is a big day for financial-company earnings. Reports due include Bank of New York Mellon (BK), Northern Trust (NTRS), Regions Financial (RF) and State Street (STT).

Apple (AAPL) reports fiscal-second-quarter earnings after the close Tuesday. It deserves special mention because Apple's shares are up 17% this year on top of a 146.9% gain in 2009. The company is now the third-most-valuable in the world, ahead of BHP Billiton (BHP), PetroChina (PTR), Wal-Mart Stores (WMT) and General Electric (GE). Apple just had a wildly successful introduction of its iPad. So, the question is if the valuation of the stock at 17.7 times the consensus estimate of $13.97 for fiscal 2011 is appropriate. The consensus estimates: $2.46 a share on earnings, up 85% from a year ago. Revenue: up 47% to $12.04 billion.

Wednesday: The big bank du jour is Wells Fargo (WFC), whose shares are up 20.6% this year. Watch its comments on credit cards and its mortgage business. Also reporting: AT&T (T), McDonald's (MCD) and Boeing (BA). On the last, watch for any mention of delays of its 787 Dreamliner, now in testing, and if orders have picked up.

Thursday: More financials report -- American Express (AXP), Capital One (COF), Fifth Third (FITB) and Blackstone (BX), the big leveraged-buyout company. Blackstone's initial public offering in 2007 signaled to many that the stock market was overbought. The company's master limited partnership units are up 12.4% this year, but they're off 61% from their 2007 open. Listen, too, to what Sherwin-Williams (SHW) has to say about the recovery.

Finally, Microsoft (MSFT) reports after the close. It may confirm Intel's contention that the business IT customer is buying again. (Microsoft is the publisher of MSN Money.)

Friday: Insurance giant and Dow component Travelers Companies (TRV) is due. Also reporting: Schlumberger (SLB), Xerox (XRX), Ingersoll-Rand (IR) and Honeywell (HON).

Ingersoll-Rand has a very close view of the economy; its business include golf carts, food display cases, industrial tools and materials-handling equipment.

Leading indicators, home sales on tap
The week has a number of important economic reports. Here are the key reports to watch:

Leading economic indicators, due Monday.  The Conference Board report should confirm the recovery is building momentum.

Producer Price Index, due Thursday. This will show some pressures on food prices and energy. (Crude oil gained 5% after rising 9% in February.) Incentives should hold down effective prices for autos.

Existing-home sales for March, due Thursday. The consensus is for an annualized rate of 5.3 million units, a gain of 5% or so. There's confidence in the number because the National Association of Realtors' Pending Sales Index was up 8.2% in February. There's a bit of a scramble going on for buyers to cut deals before tax credits for buying a home expire on April 30.

Durable goods for March, due Friday. Declines in aircraft and defense orders are expected to pull the top line number down, IHS Global Insight says.

New-home sales, due Friday. There should be some gains, perhaps to a seasonally adjusted annual 338,000 rate, IHS  says.  But those are still dreadful numbers. The key to new-home sales remains job creation.

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