Analysts see upside despite signs that recession is far from over
By ANDREW MARKS
NEW YORK CORRESPONDENT
The US stock market continued to stumble last week as investors increasingly lost confidence that the massive rebound in share price valuations in June, from the dire lows of early March, are justified by the pace of the economy’s recovery.
‘We’ve reached the bottom for the economy and the turnaround is coming. We’re not there yet, though, and stock valuations got a little ahead of themselves in anticipating the rebound, which is why investors have gotten so anxious lately.’
– Joel Naroff,
president of Naroff Economic Advisors
But as stocks head into a week filled with news on corporate earnings and the health of the economy, some Wall Street economists are predicting that the numbers will improve.
‘Fears have increased that the trend towards better economic data has stalled. We believe these are unfounded and still expect the economy to grow in the third quarter,’ said economists at Barclays Capital in a note to clients.
Stocks have struggled of late because of growing doubts that the so-called ‘green shoots’ of recovery in the economy are real, or at least sufficient to justify the distance that stocks have come back from the 12-year bottom.
‘We’ve reached the bottom for the economy and the turnaround is coming. We’re not there yet, though, and stock valuations got a little ahead of themselves in anticipating the rebound, which is why investors have gotten so anxious lately,’ said Joel Naroff, president of Naroff Economic Advisors. Barclays economists and Mr Naroff expect the economy to turn positive in the third quarter despite growing concern that recent data such as the June employment report and last week’s retail sales data hint that the recession is far from over.
‘Everyone overreacted to the positive when it started to look like we’d see a recovery in the second half, and now, six weeks later, investors are getting edgy waiting to see the data scream decisively that the recovery is on its way,’ said Mr Naroff.
Consumer sentiment in July has slipped to its weakest level since March, according to the University of Michigan Surveys of Consumers last Friday. The Dow Jones Industrial Average sank 36.65 points, to close at 8,146.52. The S&P 500 lost 3.55 points to 879.13, and the Nasdaq Composite added 3.48 points to close at 1,756.03.
The beginning of second-quarter earnings season provided meagre support for gloomy investors last week. Although Alcoa unofficially kicked off the season with better-than-expected earnings, worries over an expected weakness in construction soon overwhelmed its second-quarter numbers.
Quarterly reports will be far more plentiful this week and will feature headline companies from the financial, technology and healthcare sectors that could reverse the market’s downward slide.
‘It will be a big boost if we can get some decent guidance from some of these major companies,’ said Jamie Cox, managing partner of Harris Financial Group.
Today’s earnings report action will focus squarely on the battered banking and investment sector with Goldman Sachs scheduled to report along with mutual fund giant Charles Schwab.
The spotlight shifts to big pharma and big tech tomorrow as Johnson & Johnson, and Intel weigh in with their numbers.
‘Intel’s outlook is especially important to the market, because tech has been the only solid leader of late,’ noted Mr Cox. ‘They’re the bellwether for the PC industry, which is really the bellwether for tech in general.’
On Wednesday, Abbott Labs and AMR, the parent of American Airlines, are due to report.
Thursday is the biggest day of the week on the earnings docket, with reports scheduled from JP Morgan Chase, IBM, and Google. Semiconductor and Nokia.
Financials dominate on Friday, with Bank of America, and Citigroup in the spotlight, along with General Electric.
The economic front is just as heavy for the coming week, with key consumer and housing data on tap. Tuesday is the big day for economic reports, when an important gauge of consumer spending, US retail sales data, is released.
The Producers Price Index, the main measure of inflation is also due out, along with Business Inventories data.
On Wednesday, its another key report, the Consumer Price Index, the main measure of inflation, along with the Empire State Manufacturing Survey, industrial production utilisation for June.
Investors will also have the opportunity to review the minutes of the Federal Open Market Committee’s June 24 meeting on Wednesday.
The main event on Thursday is the National Association of Home Builders’ Housing Market Index of new homes sales.
Source : Sunday Times – 13 Jul 2009
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