Stocks may move higher, but watch the headwinds
Technology is showing some strains. Netflix and Apple earnings will be very important in the week ahead. It remains to be seen whether rising oil and gas prices will hurt consumer spending.
In an interview this past week about Bank of America (BAC) and banking stocks, analyst Dick Bove said the bank's earnings looked a little sloppy to him. And so did the economy.
And that, he went on, was what worried him -- not just Bank of America shares but the market overall.
You could see some of Bove's unease in the performance of stocks and, say, government bonds.
They had an OK week, with the Dow Jones industrials ($INDU) and the Standard & Poor's 500 Index ($INX) finishing higher and bond yields falling.
- Was Google's (GOOG) earnings miss a signal of problems ahead, and as worrisome as Microsoft's (MSFT), or just a blip? (Microsoft owns and publishes Top Stocks, an MSN Money site.)
- Will rising oil and gasoline prices stunt consumer spending between now and, say, Labor Day?
- Will next week's huge list of earnings reports cheer investors, or bring more uncertainty?
- How much higher can the market go?
The 10-year Treasury yield fell to 2.491%, down from 2.71% on July 5.
For the week, the S&P 500 was up 0.7%, with the Dow up 0.5% and the Nasdaq down 0.4%. The Nasdaq-100 Index ($NDX) fell 1.1%. Again, Microsoft, Google and Intel were weights.
But the Dow Jones Transportation Average ($DJT) also finished at a record high of 6,586.57, a 2.3% rise. Union Pacific (UNP) was a big driver.
All this despite crude oil (-CL) for August delivery topping $108 a barrel.
So, let's go back to our questions.
Tech had a not-so-great week
Google's results weren't bad. They just weren't as good as expected. Revenue and earnings missed Street estimates but were up from a year ago. Remember, Google doesn't offer guidance and analysts have to fend for themselves. What is not clear is whether Google's revenue generators are coming from mobile devices, where ad rates are lower. Yahoo (YHOO) may have seen similar trends, and Facebook (FB) may answer the question when it reports earnings after Wednesday's close.
Microsoft shares were down 11% for the week after it reported its tablet device sales have been a big disappointment. And its Windows business is suffering from the decline in personal-computer sales.
Oil prices are a wild card
AAA said the national retail price of gasoline was $3.672 a gallon on Friday, up 3.4% for the week and 4.5% this month. For the year, we're talking 11.5%.
We have seen gas prices profoundly impact consumer sales and auto sales. Not just in 2008, when AAA's national price hit $4.114 a gallon, but in 2012 as well.
The domestic auto industry's woes over the last 25 years are a big reason why the city of Detroit filed for Chapter 9 bankruptcy protection on Thursday. Detroit's was the largest chapter 9 filing by an American city.
Expect a signal of how the question will be answered in coming weeks when restaurant chains start to report sales. Watch especially for casual dining results. Panera Bread (PNRA) and Cheesecake Factory (CAKE) will be asked about it in the conference calls Tuesday and Wednesday.
McDonald's (MCD) may treat on the question in its quarterly results, due Monday.
Oil and gas prices should slide in the autumn, when the summer driving season is done and the kids go back to school. But if there isn't a break, the impact will be felt with auto sales and with home sales. North American sales have been strong this year, compared with the depths of the Great Recession.
Conference calls from Ford Motor (F) on Wednesday and General Motors (GM) on Thursday may offer some insight on the question.
Earnings season has been a mixed bag
Financial services companies, for the most part, have offered decent results, especially the big banks. But a portion of their bullish results is that banks are able to cut their loan-loss reserves. That boosts profit. It may not mean they're making more loans.
Thomson Reuters is still expecting earnings among S&P 500 companies to grow only 2.8% over a year ago. Only 49% of companies are reporting revenue beats. The long-term average is 61%. But the ratio is roughly what it has been over the last four quarters.
Earnings warnings offer fuel that the results won't be memorable. The ratio of companies warnings of earnings misses is ahead of those warning about beats by 6.3. That's the higher ratio since the first quarter of 2001.
Despite that gloom, there were decent results Friday from General Electric (GE) and Schlumberger (SLB), suggesting that industrial America is fairly strong, despite worries about China, Europe and Brazil.
Tech has been the wild card, with flash-memory maker SanDisk (SNDK) cheering investors along with the disappointments from Google and Microsoft.
Netflix (NFLX), the very best performer among S&P 500 and Nasdaq-100 stocks, will shed some light on matters Monday afternoon. The shares are up 185% this year.
Apple (AAPL) reports after Tuesday's close, and, while the shares are down 20% this year year, there is starting to be a little optimism about the company. The stock has twice bounced off lows of about $385-to-$390, and the stock is up 9.3% from its low on June 28.
Also due next week:
Monday: Hasbro (HAS), Six Flags (SIX) and Texas Instruments (TXN).
Tuesday: Dupont (DD), Freeport-McMoRan Copper & Gold (FCX), United Parcel Service (UPS), Norfolk Southern (NSC), VMWare (VMW) and Wendy's (WEN).
Wednesday: Boeing (BA), Caterpillar (CAT), PepsiCo (PEP), Qualcomm (QCOM), Visa (V) and Zynga (ZNGA).
Thursday: 3M (MMM) D.R. Horton (DHI), Dunkin Brands (DNKN), Amazon.com (AMZN) and Starbucks (SBUX).
Friday: Stanley Black & Decker (SWK), TransCanada (TRP) and Weyerhaeuser (WY).
And the market between now and whenever?
As noted, the S&P 500 ended the week at a closing high. The Dow hit its record on Thursday, and the Nasdaq hit a 13-year high on Thursday as well.
The market's performance going forward depends on the economy. If, to use Richard Bove's assessment, the economy is sloppy, the stock market will be, too. Sloppy means things like okay jobs reports offset by weakness in housing. Housing starts fell last week. But home builders surveys say that group is optimistic.
Existing-home sales due Monday and new-home sales due Wednesday will be carefully scrutinized.
Interest rates may not be the huge issue they looked like only a few weeks ago. But oil and gasoline prices are emerging as issues.
The Federal Reserve may not be much of a factor, because it has carefully said it doesn't see raising interest rates before 2015. That's a more important question than if it plans to taper bond purchases.
The charts suggest the market could move higher, maybe 5% or so, but not more -- because resistance is building in at around 1,700 on the S&P 500 and 15,700 to 16,000 on the Dow.
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