Bank results may drag stocks even lower
NEW YORK (Reuters) - U.S. stock investors could be in for further declines next week, which would worsen the markets' dismal start to 2008, as banks are due to post quarterly results that some observers expect may contain more mortgage-related surprises.
With fears of a recession mounting, any news that suggests further deterioration in the U.S. economic picture is likely to weigh heavily on stocks.
"If the numbers are not as bad as the market is expecting, we'll probably begin to see some relief," said John Praveen, chief investment strategist for Prudential International Investments Advisers LLC in Newark, New Jersey, referring to possible writedowns related to subprime mortgages.
"If the numbers are worse than what the market is looking for, we'll probably see a big sell-off," he added.
Citigroup Inc (C.N) and Merrill Lynch & Co Inc MER.N are among financial firms scheduled to report next week, while results are also expected from Wall Street bellwethers General Electric Co (GE.N) and International Business Machines Corp
(IBM.N).
For the week, the Dow Jones industrial average .DJI fell about 1.5 percent, the Standard & Poor's 500 Index .SPX declined 0.7 percent and the Nasdaq Composite Index .IXIC dropped 2.6 percent.
After three straight weeks of declines, the S&P is down 5.6 percent, its poorest three-week performance since early August. The Dow is down 6.28 percent, the worst such stretch in nearly five years, and the Nasdaq is down 9.4 percent, its worst such run in more than five years.
An extensive U.S. economic agenda also looms next week, with reports due on producer prices, consumer prices, retail sales, housing starts and business inventories.
After Federal Reserve chairman Ben Bernanke's strong signal on Thursday that the Fed will be very accommodative on interest rates at its next January 29-30 meeting, the consumer price index on Wednesday report takes on even more significance.
A benign CPI number will increase the expectation that the Fed's rate cut will be 50 basis points, not just 25 basis points, Praveen said. Interest rate futures are already pricing in a half-percentage-point cut.
FINANCIALS IN FOCUS
Both Citigroup, which reports on Tuesday, and Merrill, which reports on Thursday, replaced top leadership last year as they became mired in losses related to subprime mortgages.
The New York Times on Friday reported Merrill is expected to suffer $15 billion in losses stemming from bad mortgage investments, almost twice the company's original estimate.
Citigroup is also expected to report a large fourth-quarter loss. Its shares were up on Friday on hopes it was close to securing new outside capital, but the stock has been hit hard by concerns about further writedowns. The largest U.S. bank recorded about $6.8 billion of writedowns in the third quarter and said in November it may face another $11 billion worth. Continued...
