INVESTORS are looking at an onslaught this week. If it’s not corporate earnings, it’s Ben Bernanke talking about economic issues before Congress.
Recent warnings from a number of companies, including chipmaker Advanced Micro Devices, helped drag the S&P 500 lower for six straight days before a Friday rebound.
The S&P 500 and Dow erased losses for the week, barely finishing higher by 0.2 per cent and less than 0.1 per cent, respectively. The Nasdaq composite fell 1 per cent for the week.
With a slew of companies set to report results this week, the hope among investors is that the bad news has been factored in, but the broader picture remains lacklustre. That may limit the market’s gains even if companies clear a low bar.
“Expectations have been beaten down a lot,” said Robbert Van Batenburg, head of equity research at Louis Capital in New York. “The problem is we’re dealing with a global slowdown, and I’m sure that’s going to be reflected in some of the comments you’re going to be hearing.”
Data showing slower growth in Europe, China and the United States has weighed on the stock market, while US companies have warned about overseas weakness and a stronger dollar hurting profits on exports.
The minutes from the Federal Reserve’s June meeting suggested it is not ready to inject more monetary stimulus into the economy, but traders will be hanging on Federal Reserve Chairman Bernanke's every word for mention of such a possibility and how he views the slowing economy.
This week, dozens of Standard & Poor’s 500 companies are set to report. From top technology names including Intel and Microsoft, to General Electric and Coca-Cola.
Earnings estimates have already fallen sharply. S&P 500 earnings for the second quarter now are expected to rise just 5 per cent from a year ago, down from an estimate of 9.2 per cent at the beginning of April, according to Thomson Reuters data.
Nearly all sectors have seen estimates fall due in part to weak demand in Europe. Energy and utilities are expected to be the weakest performers this quarter after big declines in energy prices in the second quarter.
The fall in estimates could be enough so that the majority of companies end up beating expectations, as they typically do, inspiring a relief rally. That could bolster the S&P, where trading has narrowed to a range between 1,310 and 1,370 for most of a month.
Investors could see some downside surprises in high-end consumer companies, industrials and financials, said Paul Mangus, head of equity research and strategy for Wells Fargo Private Bank in Charlotte, North Carolina.
For example, Bank of America is expected to report earnings of 15 cents a share on Wednesday, but Thomson Reuters StarMine’s SmartEstimates put expectations at 13.5 cents per share, or a miss of about 9 per cent.
The technology sector could be a mixed bag, Mangus said.
“On one hand, there are very good trends on the software side. (But) there may be some disappointments among some of the hardware manufacturers,” he said.
Besides Advanced Micro Devices, a weak forecast was issued by fellow chipmaker Applied Materials last week, while engine maker Cummins warned on sales. AMD reports results on Thursday.
Negative to positive earnings guidance for the second quarter is 3.3 to 1, the worst since 2008, Thomson Reuters data showed.
Among other S&P companies scheduled to report are Goldman Sachs, Citigroup and Johnson & Johnson.
The final details of a Spanish bank bailout are expected this week among developments in the 2 1/2-year old Euro zone debt crisis.
Bernanke is due to deliver his semi-annual monetary policy report to Senate and House of Representatives committees tomorrow and on Wednesday, although analysts said he is not likely to divulge plans of further economic stimulus.
Stocks lost ground last week as Federal Reserve minutes showed further fiscal stimulus is unlikely for now.