Oct 21, 2009

Investors waiting for more clues about consumers


By STEPHEN BERNARD
AP Business Writer

NEW YORK -- After getting worrisome signs about consumers from bankers' earnings reports, investors will be looking at a broad range of companies this week for further insights into the outlook for the economy.

Consumer-focused companies including Apple Inc., McDonald's Corp., appliance maker Whirlpool Corp. and toy maker Hasbro Inc. are among those reporting results during the week. Airlines, drug companies and more big banks are also scheduled to release their earnings.

The market is so focused on companies' third-quarter results and their outlooks for the coming months that economic data like the September existing home sales report expected this week isn't likely to move the market much.

"Right now earnings are critical," said Channing Smith, a vice president at Capital Advisors in Tulsa, Okla. "Earnings, revenues give us a better picture of what's happening. If the economic data turns out well, its just the cherry on the sundae."



Investors got a surge of optimism from results in the early part of last week and bought stocks enthusiastically, betting that the reports still to be released by hundreds of companies would also point to a recovering economy. The buying Wednesday sent the Dow Jones industrials over 10,000 for the first time in a year.

On Thursday and Friday, though, the news from Citigroup Inc. and Bank of America Corp. gave investors a reality check, as both banks reported billions of dollars in loan losses because consumers are struggling to pay their bills. They also reiterated warnings that the losses will continue.

Meanwhile, General Electric Co. said Friday its financial services business was weighed down by credit card and commercial real estate losses. Commercial real estate defaults are the latest wave of loans to start defaulting en masse.

That spate of bad news brought the market's rally to a halt, and the Dow, down as much as 151 points on Friday, closed with a loss that day of 67.

Despite that end-of-week slide, the Dow still rose 1.3 percent for the week, while the broader Standard & Poor's 500 index gained 1.5 percent. The tech-dominated Nasdaq composite index rose 0.8 percent.

The fear in the market is that consumers will not only keep adding to banks' losses, but that their inability to spend beyond the necessities will curtail sales at other companies.

That is making investors particularly anxious to see how businesses in general are making their money. Traders are trying to determine if year-over-year or even quarter-over-quarter earnings increases "are due to cost cutting or really due to market expansion," said Walter Gerasimowicz, CEO of Meditron Asset Management in New York. And, if companies are seeing their sales pick up, is that improvement likely to continue in the fourth quarter and beyond.

Since the stock market tends to trade based on expectations six or nine months into the future, the concern on Wall Street remains whether investors who have sent stocks soaring since early March might have been ignoring or underestimating the many problems in the economy. If companies' own expectations match investors', that is likely to reassure investors and keep them buying. But any more doses of reality are likely to put the rally on hold for at least a while.

While investors aren't concentrating on economic data right now, they will be interested in what the Federal Reserve has to say about where the economy is now and where it's like to be in the near future.

Fed Chairman Ben Bernanke is scheduled to give two speeches during the week. Bernanke speaks Monday at the Federal Reserve Bank of San Francisco Asia Economic Policy Conference and Friday at a Fed conference in Boston on financial regulation and supervision after the credit crisis.

The Fed is scheduled to release its beige book report on Wednesday, which breaks down economic activity on a regional basis.

Among the other reports expected are the Commerce Department's September housing start data on Tuesday. The report is expected to show housing starts rose to annual rate of 610,000 in September from 598,000 the previous month, according to economists polled by Thomson Reuters.

Another housing report comes from the National Association of Realtors, which releases its existing home sales numbers from September on Friday. Economists forecast sales rose to an annualized rate of 5.3 million from 5.1 million in August.

A private research group releases data on leading indicators, which project economic activity for the next three to six months. The Conference Board's index is likely to show continued signs of growth.

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