Long-term yields for U.S. Treasuries should indeed firm but be tempered by a slowing as this phase o...
Stuck in a Rut Before Earnings Come in
10/04/2010 5:06 pm EST
The Standard & Poor’s 500 stock index closed on Friday, September 24 at 1,149. The index closed on Friday, October 1 at 1146.
That’s a net move of three points in five trading sessions. For the past week, stocks have been stuck in a rut. Spinning their wheels. As stagnant as Polka’s pond in August. (I played hockey there in the winter. In August, you don’t want to know.)
For the first few days of this week, I expect a replay of last week’s lack of net movement. But things will start to change on Thursday. That day brings the beginning of earnings season with a report from PepsiCo (NYSE: PEP) before the market opens and from Alcoa (NYSE: AA) after the market closes. And then on Friday, the US government will announce job and unemployment figures for September.
I’m willing to bet that even if you’re committed to torturing the data, you won’t be able to find much direction in those numbers. Alcoa simply isn’t the right company in the right industry to tell us how the economy is doing or what earnings season is going to look like. The unemployment numbers are moving so slowly that all they tell us is that they’re moving slowly—which is itself depressing this long after the official end of the Great Recession.
Earnings season really starts to deliver next week with a report from Intel (Nasdaq: INTC) after the close on Tuesday, October 12. Everybody will be waiting to hear what Intel says about the upcoming and critical fourth quarter and consumer buying (or lack thereof). That report will set the tone for the entire technology sector.
On Wednesday, October 13, before the open, JPMorgan Chase (NYSE: JPM) kicks off bank earnings. Investors want to know if trading revenues at the big banks will be as bad as expected (and therefore depress earnings to the degree now projected).
But the really important trend to watch will be how fast credit quality is improving at banks. If consumers are falling into delinquency less frequently, banks will be able to actually reduce their loan-loss reserves—and that will be a boon to bank earnings.
But a falling delinquency rate is also a critical precursor of any recovery in consumer spending. It’s hard to work up much enthusiasm about spending when your credit card has just been suspended. (For more on how this earnings season could lead to a dip in the markets, see this post.)
So, expect to see some movement in stock prices at the end of this week. But I’m afraid you’ll have to wait until the following week to see action that results in much net change in prices.
Full disclosure: I don’t own shares in any company mentioned in this post in my personal portfolio.
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