Friday, July 10, 2009

US Market Weekly Update

. Friday, July 10, 2009

By stockOzone team

With Wall Street's rally stalled, next week could be crunch time as big banks' earnings, including Citigroup's (C.N), roll in and investors scrutinize reams of economic data for clues on the recovery.

Bank of America Corp (BAC.N), Intel Corp (INTC.O), and General Electric (GE.N) are among several Dow components due to post their quarterly scorecards in the coming week. Their outlooks may shed light on whether the much anticipated economic revival has legs.

The economic calendar has plenty of indicators for investors to chew on, including June retail sales, the Producer Price Index and the Consumer Price Index, industrial production, weekly jobless claims and housing starts.

Any negative surprise will add fuel to what is shaping up to be the market's first significant pullback since the Standard & Poor's 500 broke away from a 12-year closing low in early March.

"It looks to me like the market might be vulnerable to a correction," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati.

"Earnings are probably the key factor next week. People are going to be looking to see if there's any mention of a turnaround in earnings."

This past week, the U.S. stock market exhibited high anxiety about the start of the latest earnings season.

The market drifted lower and broke through key technical support despite Alcoa Inc (AA.N) kicking off the reporting season on Wednesday with a smaller-than-expected quarterly loss.

The benchmark S&P 500 .SPX rallied as much as 40 percent from the 12-year closing low of March 9. But it met some strong headwinds in May and June that stalled the sharp run-up.

The S&P 500 has lost more than 7 percent from its recovery peak in early June. That puts it on the cusp of a long-awaited correction, defined as a drop of at least 10 percent from a recent peak.

On Friday, the Dow Jones industrial average .DJI and the Standard & Poor's 500 Index .SPX ended the session modestly lower and wrapped up their fourth straight weekly decline on a profit warning from Chevron and a slide in consumer sentiment. The Nasdaq Composite Index .IXIC eked out a gain on Friday with a lift from the tech sector.

For the week, though, all three major U.S. stock indexes fell: The Dow was down 1.6 percent, the S&P 500 was off 1.9 percent and the Nasdaq was down 2.3 percent.

Much of the earnings spotlight will fall on banks next week since their rebound kicked off the spring rally following news of a surprisingly strong start to 2009 and reassuring results from the government's stress tests.

In the banking sector, investors will first hear from Goldman Sachs (GS.N) on Tuesday, followed by JPMorgan (JPM.N) on Thursday, and then Bank of America (BAC.N) and Citigroup (C.N) on Friday.

Another marquee name on Friday's earnings roster is GE, whose businesses include manufacturing, finance and the media/entertainment sector.

Among tech bellwethers, chipmaker Intel is scheduled to report earnings on Tuesday, followed on Thursday by Web search company Google Inc (GOOG.O) and technology services giant International Business Machines Corp (IBM.N). For a full earnings diary, see [RESF/US]

Dow component Johnson & Johnson (JNJ.N), the huge healthcare and consumer products company whose products include Band-Aids, baby shampoo and Tylenol, will report quarterly results on Tuesday.

On Thursday, Harley-Davidson's (HOG.N) results are scheduled for release. The motorcycle maker, whose Harleys or "Hogs" are popular with affluent baby boomers, is among companies whose earnings and outlooks serve as a barometer of consumer spending. Harley-Davidson's earnings will come two days after the scheduled release of U.S. government data on June retail sales.

"People want to see good earnings and the next stage of improvement in the economic data," said Mike O'Rourke, chief market strategist at BTIG LLC, an institutional brokerage in New York.

"People are intent on waiting on the sidelines until they have a reason to start buying again -- or until the data turns bad and (they) start selling again. We are in a holding pattern, from a catalyst or economic data standpoint."

With the economic recovery on everyone's mind, the latest monthly retail sales data from the Commerce Department will have the potential to color investors' mood.

June retail sales are forecast to rise 0.4 percent, versus May's increase of 0.5 percent, according to economists polled by Reuters. Excluding autos, June retail sales are forecast to gain 0.5 percent, matching May's increase.

The monthly retail sales report is due at 8:30 a.m.

The specter of inflation has hung over Wall Street lately due to concerns that an economic recovery may stoke pricing pressures.

So the Producer Price Index, also due on Tuesday at 8:30 a.m., will be an attention grabber. Overall PPI is forecast up 0.9 percent in June, the Reuters poll showed, after May's gain of just 0.2 percent. Core PPI, which excludes volatile food and energy prices, is expected to inch up just 0.1 percent in June, following May's dip of 0.1 percent.

On Wednesday, the Consumer Price Index for June is set for release at 8:30 a.m., with the forecast calling for a gain of 0.6 percent, according to the Reuters poll, after May's increase of 0.1 percent. Core CPI, which excludes volatile food and energy prices, is pegged to rise 0.1 percent in June, matching May's increase.

At 9:15 a.m. on Wednesday, June industrial production and capacity utilization data are expected from the Federal Reserve.

In the afternoon, around 2 p.m. on Wednesday, the Fed will release the minutes from the Federal Open Markets Committee's two-day policy-setting meeting in late June. Investors will look for insights into how the Fed arrived at its recent assessment of the economic outlook.

Thursday will bring the latest weekly data on initial claims for jobless benefits. On Friday at 8:30 a.m., June housing starts are expected, with the Reuters poll calling for a seasonally adjusted annual pace of 530,000 units, nearly steady with May's pace of 532,000 units.

Disclosure: Author does not own any of the stocks discussed here.

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