| NEW YORK, July 12
NEW YORK, July 12 Next week marks the first big
week of second-quarter earnings, and it is sure to bring both
joy and misery to Wall Street.
Investors will concentrate on market fundamentals after
weeks when Federal Reserve policies have dominated the market.
If they see companies are still struggling, stocks could take a
Even after Fed Chairman Ben Bernanke scared markets in June
by telling investors the Fed is likely to reduce monetary
stimulus in coming months, stocks have recovered, with both the
Dow and S&P 500 climbing to all-time highs. In an appearance
earlier this week, the Fed chairman said monetary policy was
likely to be accommodative for some time.
"We're in the terminal stages of a Bernanke-driven bubble,"
said Walter Zimmerman, technical analyst at United-ICAP in
Jersey City, New Jersey. "While a lot of damage has been done to
the bear case, eventually bad news like weak earnings growth
will start to bear fruit."
To be sure, the Fed, which has shown a much friendlier face
to investors lately, will not be out of the picture. Bernanke
will appear before congressional committees on Wednesday and
Thursday to deliver the semiannual testimony about monetary
policy. However, few surprises are expected.
The S&P's 17.8 percent advance in 2013 is largely
attributable to the central bank's accommodative policies. The
major indexes made impressive gains in the week: the Dow
up 2.1 percent, the S&P 3 percent higher and the Nasdaq
up 3.5 percent. It was the third straight week of gains
for all three, and the best week for the S&P and Nasdaq since
"The Fed has been able to prevent a big selloff so far, but
eventually the economy will have to catch up to the market or
the market will fall back to match the economy," said Scott
Armiger, who helps oversee $5.6 billion as portfolio manager at
Christiana Trust in Greenville, Delaware.
MORE FOCUS ON EARNINGS
That analysts are now turning their focus to earnings,
believing the Fed's power to buoy stocks is waning, may not be a
positive if the rally is going to continue.
Earnings are seen growing 2.8 percent in the second quarter,
according to Thomson Reuters data, a far cry from the 8.4
percent growth forecast by analysts on Jan. 1. Revenue is now
seen growing 1.5 percent.
For every company that has said it expects positive
earnings, 6.5 have lowered their forecasts, the worst
positive-to-negative ratio since the first quarter of 2001.
United Parcel Service Inc, the world's largest
package delivery company, tumbled on Friday after giving a weak
profit outlook, citing economic conditions as one reason.
Companies can appear to look good when they beat a lowered
earnings bar, but signs of weakness will hurt a market that is
hovering near all-time highs and seeking new catalysts to spur
"The second quarter wasn't particularly robust, and
estimates seem to still be too high," said Barry Knapp, managing
director of equity research at Barclays Capital in New York.
"We don't really see any sector where there is a positive
risk/reward, just places where there are more likely to be
Next week about 70 S&P 500 companies will report results. If
the results indicate that companies' earnings are still weak
despite intervention by the world's major central banks, shares
General Electric, Verizon, Johnson & Johnson
and UnitedHealth are among the biggest names, as
are tech giants Microsoft Corp, Intel Corp,
Google Inc and IBM.
Financial companies may be the most in view as investors
look to reports from Bank of America, Citigroup,
Goldman Sachs and Morgan Stanley, among others.
The sector is seen posting profit growth of 19.6 percent in the
quarter, by far the highest among S&P groups.
"Since they have the highest growth expectations, it will be
especially important for the market that they live up to those
expectations," said Sam Stovall, chief investment strategist for
Standard & Poor's Equity Research Services in New York. "Those
results will be pivotal."
Early results from financial companies were mixed. Wells
Fargo & Co and JPMorgan Chase & Co posted
profits that beat forecasts, though JPMorgan said it might be
forced to accelerate cost-cutting because of difficult market
Among economic reports, June retail sales will be released
on Monday, with consumer prices and housing starts, both for
June, will be released later in the week. The July Philadelphia
Fed survey of manufacturers is due on Thursday.