What's ahead for the stock market

After Friday's drubbing, investors face a big week of earnings reports. On tap: Goldman Sachs, IBM, Apple, Wells Fargo and Microsoft. Steel yourself for weak housing reports.

By Charley Blaine Jul 16, 2010 7:13PM
Charley BlaineA nasty stock-market sell-off on Friday wiped out  investors' hopes for a second straight week of gains.

The week ahead offers another minefield for investors. So be ready for a potentially rocky weak.

Five reports due out will likely reconfirm the dreadful condition of housing in many markets.

Add to them more than 600 earnings  reports. The schedule includes such companies as IBM (IBM), Apple (AAPL)Microsoft (MSFT), Halliburton (HAL), Peabody Energy (BTU), Goldman Sachs (GS), Morgan Stanley (MS), Wells Fargo (WFC) and US Bancorp (USB).  (Microsoft is the publisher of MSN Money.)

On Wednesday, Federal Reserve Chairman Ben Bernanke starts two days of testimony before Congress. Lastly, European banking regulators plan to release stress tests of some 91 financial institutions on July 23.

The past week put to rest the idea that second-quarter results would be fairly robust. Reports from Google (GOOG), Bank of America (BAC), Citigroup (C) and General Electric (GE) all had problems for investors, and shares tumbled in response.

Yet it's also true that analysts have raised estimates on a number of companies that report next week including Apple, Netflix (NFLX), Continental Airlines (CAL) and Caterpillar (CAT). But in a tricky environment like now, who knows if the companies can deliver?
There is one sector in which investors should be prepared for disappointment: big financial companies.

Many analysts have been chopping back estimates for Goldman Sachs, for example, not because it agreed to pay $550 million to settle its dispute with the Securities and Exchange Commission. The problem is that its trading business has been soft. So has its investment banking business.

So the consensus estimate for Goldman has dropped from $4.72 a share two months ago to $2.07 now.

The same holds for Morgan Stanley, and it was seen on Thursday in the earnings from Dow component JPMorgan Chase (JPM).

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Here are some key stocks to watch next week:

Zions Bancorp, before Monday's open. Zions (ZION) is the first big regional bank to report, and investors will be watching its comments on its real estate loan portfolio and the health of consumers. The stock fell 6.3% to $21.69 on Friday and is down 28% since peaking on April 23. But it is still up 69% for the year. The estimate is for a loss of 55 cents a share for the quarter, compared with 35 cents a share a year ago.

IBM, after Monday's close.
Big Blue has been a model of consistency, beating estimates regularly, growing earnings and pushing guidance higher. The consensus estimate is for earnings of $2.58 a share, up 11% from $2.32 a year ago. Revenue is expected to grow 4% to $24.2 billion.

Goldman Sachs, before Tuesday's open. Thetrading business will be the key to its results.  The analyst consensus estimate is for $2.07, down from $4.93 a year ago. Revenue is projected at $9 billion, down from $13.8 billion a year year ago.

Apple, after Tuesday's close. The results for its fiscal third quarter should be strong, if only because Apple low-balls its guidance. The analyst estimate is for $3.09 a share, up 53% from a year ago. Revenue is projected at $14.7 billion, up 75% from a year ago. Watch the sales numbers for its iPad and iPhone 4.

Wells Fargo, before Wednesday's open. The banking giant, which has one of the nation's largest mortgage businesses, managed its way through the 2008 crash better than most. The consensus estimate is for 48 cents a share in earnings, down from 57 cents a share a year ago. But the consensus has risen from 45 cents three months ago.  Watch for its comments on real estate and the cost of the new financial regulation legislation.

Caterpillar, before Thursday's open. The construction-equipment maker gets the bulk of its revenue from outside the United States. So, its view of the global economy -- particularly about China, India and Latin America -- will be important. The consensus estimate is 84 cents a share, up 17% from a year ago. Analysts see revenue jumping 23% to $9.8 billion. The stock is up 12.2% this year.

United Parcel Service, before Thursday's open. The outlooks for UPS (UPS) and FedEx (FDX) are closely watched. The package-shipping companies tend to see economic trends emerging before anyone else. Both have consistently noted strong growth in Asia and elsewhere but only steady business at best in the United States. The consensus estimate is 76 cents a share in earnings, up from 49 cents a share a year ago, with revenue up 10.2% to $11.9 billion.

Microsoft, after Thursday's close. For some time, company officials have said they expect corporate customers to start replacing older computers with new ones using the Windows 7 operating system starting in the third quarter of 2010. Intel (INTC) suggested in its analyst call on Tuesday that the refresh cycle, as it's often called, has started in a big way. Look also for comments about new products, such as tablet devices being developed with Dell (DELL) and others, and a new operating system for mobile phones. The consensus earnings estimate for Microsoft's fiscal fourth quarter is 46 cents, up from 36 cents a year ago, with revenue up 16.5% to $15.3 billion.

Verizon Communications, before Friday's open. Verizon (VZ) is reportedly going to get the Apple iPhone next year; Steve Jobs suggested it Friday in his apology about the iPhone 4's antenna problems. But Verizon's mobile business is doing fairly well selling devices based on Google's Android system. Earnings are projected at 56 cents a share, down from 63 cents a year ago, with revenue up 0.7% to $27 billion.

McDonald's, before Friday's open. Fast-food giant McDonald's (MCD) has offered cheer repeatedly, with decent same-store sales both in the United States and abroad. The stock's been steady -- up 12% on the year. Its $69.94 close on Friday was off just 2.2% from its April 29 peak.

Bernanke and the economy
In his congressional testimony, the Fed chief will probably say that the economic recovery is continuing but has softened. The Fed made that point this week with a forecast that trimmed growth projections.

Bernanke will be grilled about why the economy hasn't responded to record-low interest rates and why the housing market is a mess.

He will also take some questions about the newly passed financial reform bill. Wall Street, predictably, hates it. That antipathy was a contributor to the slide in bank stocks on Friday. The Standard & Poor's Banking Index ($BIX) was off 5.6%.

His testimony will come amid a series of reports that will continue to show the weakness of housing. This will be due in large part to the end of the government's homebuyer tax credit programs in April.

So, you can expected declines in the National Association of Home Builders/Wells Fargo Housing Market Index, due Monday. 

It will probably depress June housing starts and building permits, due Tuesday from the Commerce Department. IHS Global Insight sees starts at an annualized 550,000 units. The consensus is 577,000 units, compared with a rate of 593,000 units in May.

You can expect fewer mortgage applications for home purchases, when the Mortgage Bankers Association reports on mortgage applications on Wednesday. Refinancings should be strong, though.

And look for a 10% decline in existing-home sales for June in a report due Thursday from the National Association of Realtors.

It's no great secret why housing is such a mess. The Midwest is suffering from a near-collapse in manufacturing. In much of the rest of the country, there were too many houses built for too many buyers who couldn't afford the payments but somehow qualified for subprime mortgages. So there is a massive overhang of homes in foreclosure.

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[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 shed less than a point, ending the week higher by 1.3%, while the Dow Jones Industrial Average (+0.1%) cemented a 1.7% advance for the week. High-beta names underperformed, which weighed on the Nasdaq Composite (-0.3%) and the Russell 2000 (-1.3%).

Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, ... More


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