Markets may feel pain from Spain next week

Concern that Spain could default on its debt may negate what should be a decent week for earnings. Companies reporting include Coca-Cola, Citigroup, IBM, Intel, Kimberly-Clark, Microsoft and GE. Also due is the March report on housing starts.

By Charley Blaine Apr 13, 2012 9:32PM
Charley BlaineUpdated: 6:35 p.m. ET Sunday

Sooner or later, Europe was going to emerge again as a problem for markets around the world.

This past week was the week, and the coming week's market performance may well depend on how investors view the conditions in Spain and Italy. The big day will be Thursday, when Spain is to auction 2- and 10-year bonds. A bad auction -- producing a high yield or too little demand to sell the entire issue -- could slam markets around the world.

The auction will come as 11 components of the Dow Jones Industrial Average ($INDU) and such heavyweights as Goldman Sachs (GS), Morgan Stanley (MS) Qualcomm (QCOM) and Union Pacific (UNP) will report earnings.

In addition, important reports are due on retail sales and housing. And Thursday's weekly report on initial jobless claims will get close scrutiny after the claims rate bumped up in the latest week.

The bottom line: The week ahead will be busy in the midst of a downturn. Futures trading late Sunday suggests U.S. stock will open lower. The week has the potential to be stomach-churning. And it will come after stocks suffered their worst weekly performance of the year and their second weekly loss in a row. The Dow lost 1.6%, with the Standard & Poor's 500 Index ($INX) down 2% and the Nasdaq Composite Index ($COMPX) fell 2.3%.

Article continues below.
It was a week that saw declines for Apple (AAPL), down 4.5%; Whirlpool (WHR), down 4.8%, General Electric (GE), off 3.3%, and Ford Motor (F) and General Motors (GM), down more than 4% each.

Heathcare stocks were slammed. The Morgan Stanley Healthcare Payors Index ($HMO) fell 7.6% on the week, the worst-performing index among 42 that Market Dispatches tracks.

And the European markets had a bad week. German stocks fell 2.8%. French stocks dropped 3.9%. Spanish stocks fell 4.2% -- and are off some 20% since early February.

Before you rip out your hair, remember: The U.S. rally rally for 2012 is still intact. The Dow is up 5.2% for the year, with the S&P up 9% and the Nasdaq up 15.6%. TheNasdaq-100 Index ($NDX) is up 18.5%. Apple, the heaviest influence on the index and up 12 out of the last 13 weeks, is still up 49% for the year.

But there are head winds that could affect how the markets perform in the week ahead.

Here's what to look for:

Spain is the big worry
Spanish bonds sold off in a big way this week, with their yield ending the week at about 6%. That's a big number for government debt, and it comes because Spain's economy is a mess, beaten up by a housing bubble-and-bust that may be worse than the U.S. housing bubble.

The eurozone's fourth-largest economy is in a major recession, with unemployment above 20%, and the government is struggling to meet demands that it cut spending. How the economy will grow again is another question entirely.

So, its debt is now in the crosshairs of speculators who believe it's worth much less than its face value and are busy making profits with heavy shorting.

The big debt auction on Thursday will tell markets if Spain can survive the immediate crisis or if the eurozone will need to employ some of the $1 trillion bailout fund to keep Spain afloat.

Markets for the week



4/13/2012

4/6/2012

% chg.

YTD chg.
Dow Industrials

12,849.59

13,060.14

-1.61%

5.17%
S&P 500

1,370.26

1,398.08

-1.99%

8.96%
Nasdaq 

3,011.33

3,080.50

-2.25%

15.59%
Russell 2000

796.29

818.18

-2.68%

7.47%
Crude oil 

$102.83

$103.31

-0.46%

4.05%
(per barrel)











U.S. Dollar Index 

80.55

80.09

0.58%

0.03%
10-yr. Treasury

2.00%

2.06%

-3.06%

6.79%
Gold

$1,660.20

1,630.10

1.85%

5.96%

Earnings season switches into high gear
This past week marked the start of the first-quarter earnings season. Thirty-two S&P 500 companies have reported earnings already, including Alcoa (AA) and JPMorganChase (JPM). Of these, 75% have beat Street estimates. That's above the long-term average of 62%, according to Thomson Reuters, which tracks the data. Thomson still sees an earnings-growth rate for the quarter of 3.5%. Take out Apple, which is due on May 24, and the growth drops to 2%.

Some 86 components of the S&P 500 are set to report earnings in the coming week. Of these, 11 are Dow components, including Bank of America (BAC), American Express (AXP), Coca-Cola (KO), General Electric (GE), Microsoft (MSFT) and McDonald's (MCD).

The lineup of key reports:

Monday: Citigroup (C), Charles Schwab (SCHW), newspaper publisher Gannett (GCI) and toymaker Mattel (MAT). Citigroup is probably the biggest report. The goal will be to convince investors that its finances are in order and that a dividend increase will really happen. An embarrassing result of the Federal Reserve's stress tests was that the banking giant was forced to shelve plans for a dividend increase.

Tuesday: Coca-Cola, IBM (IBM), Intel (INTC), Johnson & Johnson (JNJ) and Yahoo (YHOO).  Coca-Cola and IBM should be the stars of the day. Both have been reporting consistent earnings gains in recent quarters, with IBM's stock price hitting a record high of $210.69 on April 3. Semiconductor maker Intel also has become a darling of Wall Street, also hitting a 52-week high this past week. Johnson & Johnson has been struggling for months with quality control and other problems.

Wednesday: American Express, asset-manager Black Rock (BLK), wireless network developer F5 Networks (FFIV), telecommunications chip maker Qualcomm and tool maker Stanley Black & Decker (SWK). American Express will help gauge consumer confidence by how well people are using its cards. Qualcomm is a supplier to Apple. Stanley Black & Decker will shed some light on the housing and home-renovation markets.

Thursday: Bank of America, Blackstone Group (BX), DuPont (DD), Microsoft, SanDisk (SNDK), Union Pacific (UNP) and Verizon Communications (VZ). (Yes, it's that big of a day, actually bigger.) What investors want to know about Bank of America is how much progress it's made in getting its mortgage business back into shape. Watch SanDisk to see if its client base can survive the iPhone. And Union Pacific's guidance is a way to look at where the economy overall is headed. Microsoft, the publisher of MSN Money, will want to address how the personal computer business is faring against the onslaught of tablets and its expectations of a slew of new products, including Windows 8.

Friday: General Electric, Honeywell (HON), athletic-apparel-makerUnder Armor (UA), Kimberly Clark (KMB), McDonald's (MCD) and oil services giant Schlumberger (SLB). 

The economy: retail sales, housing and manufacturing
The perception of the economy has been beaten up in the last week or so because of disappointments in the March jobs report, this past week's jobless-claims report and hints of inflation. The Federal Reserve is divided about whether inflation is going to erupt or not.

This week may clarify things, Europe notwithstanding.

Retail sales for March, due Monday: This should show some improvement from February and from a year ago if only because March was the warmest on record. That's good for builder materials, gardening equipment and Easter sales. Apple's release of its new iPad should also  boost the data, according to IHS Global Insight. But a dip in auto sales will be a drag.

Housing starts and building permits, due Tuesday: Yes, starts were lower than expected in February. But permits were up quite a bit, and many analysts see that feeding into starts in March. Plus, both Wells Fargo and JPMorgan Chase cited growing mortgage demand.

National Association of Home Builders Housing Market Index, due Tuesday: This should also show some improvement. Remember, however: Housing starts and building permits are still at near-record lows.

Empire Manufacturing Index and the Philly Fed Index, due Tuesday and Thursday, respectively. These reports from the Federal Reserve Banks of New York and Philadelphia  should offer some insight on the strength of the manufacturing rebound.

Initial jobless claims, due Thursday from the Labor Department. The key is if the seasonally adjusted rate stays under 400,000 and preferably below last week's 380,000 rate.

Existing-home sales, due Thursday from the National Association of Realtors. The key is investor buying, now around 30% of total sales. Look for a small gain, and look to see if the inventory is falling. Measured in months' supply, the inventory was at a 6.4-month supply in February.

Index of Leading Economic Indicators, due Thursday from The Conference Board. Look for a small gain, driven by stock prices and small gains in interest rates as the economy looked stronger.
60Comments
Apr 15, 2012 8:15PM
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I am totally against banks reducing the principal on a loan to help bailout homeowners.  I've owned 9 houses in my life and in some cases didn't sell them anywhere near what I had hoped for...so I guess I should go back to the gov and have them write me a check for the difference of what I sold for and what I had "hoped" to make?  Plus many of these people claim they didn't know what they were signing...then guess what..you shouldn't have signed the papers!  In some cases these are the same people who would brag about "flipping" houses then when things went south they want a hand out.  Or they just had to have the latest techo gadgets for their house along with hardwood floors, granite countertops, swimming pool and let's not forget the extra square footage, 3-car garage etc.  Here's my proposal...do not reduce the principal on any loan but extend the loan if necessary to make the payment more affordable.  No more gov bailouts...enough is enough.  What will we want bailout out next?  Bad business loans?  Stocks that dropped in value?  Hold people accountable for their actions and their debt!!
Apr 16, 2012 6:03AM
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Oh how I wish the real America would show up, not this socialism light.
Apr 14, 2012 8:30AM
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Alias Barry Soetoro,

 

Obama is not a communist yet.  He does not believe in state ownership of all property.  Obama is a socialist.  He believes in seizing property (through taxation) to redistribute to his campaign supporters and permanent welfare class.  He may appear to be communist with his nationalization of AIG, Big Banks, Government Motors and others.  He is clearly in the socialist mold of BELEIVING in big government.  He favors Public ownership of education, medical care, banks, mortgages, Insurance, and a host of other industries.  Dr. Gobbels, a socialist through and through recognized the need for state control over education. 

 

In short, Mr. Obama has not tried to seize all property by force yet.  He is a socialist, not communist.

Apr 14, 2012 12:21PM
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hmmm.... let see...  The party that believed in Slavery = Democrat,  Jefferson Davis' life long party = Democrat, Founders of the KKK = Democrat, Last KKK Grand Wizard to serve in the Senate (Byrd, WV, Democrat), George Wallace = Democrat, Most segreated city in America = Chicago, a Democrat bastion...  Party that believes the way to control races is through government handouts?

 

Party thast freed the slaves?  Republican...

 

I as not sure I get your point on Racism...  Or are you suggesting based upon history that democrats should be voted out if you stand against racism?

Apr 14, 2012 10:42PM
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when barrys health care is found to be unconstitutional and is booted by the supreme court he will be proof posative of one thing for sure. if you can't do, you teach(constitutional​ law). so his next job will be what... teaching pe?
Apr 14, 2012 8:33AM
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And Obama may be from Chicago where thousands of the dead (with Acorn's help) vote every election, but they usually pick LIVING people to vote for, although I would not put it past the Democrats to insist that the dead are a valuable constituancy, and thus need representation.

 

 

Apr 16, 2012 8:35AM
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Get out of personel debt.  Be in the market if you want.....but pay off your house, car, credit cards, etc..

It's great peace of mind AND you also, then, who cares what banks do or don't do, you aren't involved anyway.

Apr 14, 2012 8:40AM
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I see from Mr. Obama's tax returns he doesn't believe in what he preaches.  He paid slightly under 21% in taxes, not the 30% he says HE should pay...

 

Did the Mr. Obama decide, that he is right, and write an extra check to make up the difference?  No the hypocrite decided he would only pay what was due, not what he claims to believe is his fair share.  Like his hypocrite friend Buffett, who says the same thing, all the while FIGHTING the IRS that claims he OWES far more in back taxes.

 

Like typical democrats, they want someone else to pay, but when it comes to them, no way...

 

This is the definition of HYPOCRITE!

Apr 15, 2012 3:16PM
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Banks are still not out of the woods .. for the main reason that bankers have become addicted to playing the stock market (craps) instead of making loans to qualified borrowers.  True Story:  Wells Fargo wouldn't make a first time home buyer loan to a honorably discharged Afghan veteran, with good credit, and 20% down .. so his rich uncle is selling stocks and paying cash for the house to give to the young man.  Maybe what we need is the Fed, Treasury and Congress to take a look at how the banking industry is investing the TARP bailout  .. CEO bonuses and crap games - verses - loans to Americans with good credit?
Apr 15, 2012 10:28AM
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I guess the rain in Spain isn't going to fall mainly on the plain. Who cares this is going to go on and on like Greece. Grecce hasn't been out of the news for a couple of months they most of gotten some money somewhere. If Spain falls it's their own fault.
Apr 16, 2012 8:38AM
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Nothing new here. Any one with their head not in the sand, has known for months that Spain is very likely to default.
Apr 14, 2012 2:56AM
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Don't sell your gold or silver just yet. Prices of things are getting too high to buy. Obama didn't rebuild the infrastructure as promised, did not do much for housing, did not throw the lobbist out the white house. If he ran on what he he did - Give billions in stimulus money to Banks, Goldman Sachs, Aig, illegal Immigrants , food stamps & welfare non workers. He would not of got elected. The Iraq war ended on Bush's time table. Spain is a big deal so be sure your gun is in firing condition or all may be taken from you. Very dangerous times.
Apr 15, 2012 4:23PM
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Well I can understand, not making that loan Doug.  Probably has no job lined up.  YEars ago, banks would not make a loan if you didn't have 3 years on a job.  And the 20% down was the minimum margin required, most required more, of additional collateral to get the loan amount to 80%.

 

Banks are in the business of being repaid.  To much risk in real estate with a banker taking 80% of the bet.  Especially in a still falling market.  Anoth huge risk is that the Obama Administration keeps pressuring banks to reduce the principle.  I.e. take some of the market losses for current borrowers.  Imagine if the Stock Market margin lenders would have to 'forgive' principle.

 

No, the problem is people need to save more for real estate gambles.  And don't tell me RE is not gambling.  It is worse than car loans...

Apr 16, 2012 9:03AM
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Oh gee, another socialiest country with the entitlement mentality to free everything from the government going bankrupt.  Kick these coutnries out of the EU and let them rot.
Apr 16, 2012 9:18AM
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Giante------The world famous lefty cry, "Bush did it" and "you're a  racist"
Don't you handouters---------------ever--------------get tired of sounding asinine?

Apr 16, 2012 9:18AM
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I do not care how Romney spends his money.  I care about how obame spends mine.
Apr 16, 2012 7:35AM
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Remember about 20 years ago before the Internet didn't take over? Now stocks go up and down 10 times a day and we're worried about stuff in Europe or Spain and it now sets the pace for the economy here daily. Seems technology to make life easier doesn't make life better. Some of the same stuff going on today went on then, just nobody was wired straight to their markets over seas from their living room or cellphone . Now you know why they always said "bad news travels fast". I miss the old days when you heard about pork bellies and cattle on the 6pm news.
Apr 15, 2012 9:24AM
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Lots of reports out next week but one thing you can be sure of...if there is even a glimmer of positive news the investors will "cheer" and the market will "soar".  I look for the market to gain about 200 points next week whether it should or not...those in control will make sure it does.
Apr 16, 2012 9:25AM
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Since the beginning of recorded history , we have told the handouters, "Ain't no such thing as a free lunch".
Since the beginning of history we have watched  the leftys take countries down the tube trying to get a free lunch.
Still, every time an Obama comes down the lane, tootling on his fife, the handouters climb on the bandwagon

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Now it will since you mentioned it...guess it's gotta be something right, let the fixed game begin. Tomorrow it will go down due to a lawnmower shortage in kenya. Then rise the next day due to incorrect data on said lawnmower shortage.

Spain ain't got nothing on us, should have no effect, freakin bunch of bs this market has become. What happened to the actual performance of the company not " speculation" of how a company might do or a sector. If a company makes x amount of increase per quarter yet their"speculation" was thought to be a few cents more..h how can it go down in price if it performed well....

****ING speculators and super computers who only certain entities can use with its special algorithms trading. Makes a handful super wealthy and is obviously  destroying the worlds economy and lives.

RON PAUL 2012

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