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The Wall Street Journal: Lookahead: No Satisfaction

EXTRACT: Also reporting next week are the big oil companies, who have been the stars of this and every recent earnings season. BP, ConocoPhillips, Chevron, Exxon Mobil and Royal Dutch Shell are expected to report a whopping $33.6 billion combined, the Associated Press reports, an industry record. That should make them more popular than ever with a public paying nearly $3 a gallon for gas.


July 21, 2006 9:27 p.m.

After a week in which the stock market got mostly good news from corporate earnings and the Fed, but still reacted sourly, investors will look for clues as to whether anything can satisfy this market.

What Happened

At July 21 Close  Week’s % Change 
Dow  10868.38  1.2% 
Nasdaq  2020.39  -0.8% 
S&P 500  1240.29  0.3% 
10-year yield  5.04%  5.07%* 
Euro vs. dollar  $1.269  0.3% 
Gold  $620.20/oz.  -7.0% 
Silver  $10.84/oz.  -5.3% 
Crude oil  $74.43 a barrel  -3.4% 

*Last week’s closing yieldStocks rebounded after a grim selloff the prior week, but the rally was hardly worth a letter home, with the exception of one day. Stocks posted tepid gains on Monday and Tuesday and retreated on Thursday and Friday. But Ben Bernanke sparked a wild rally on Wednesday with comments Wall Street interpreted as dovish about inflation.

Many spoilsport analysts noted the Fed chairman basically repeated stuff he’d already said before: The economy is due for a slowdown, taking inflation with it, but central bankers will stay vigilant against runaway prices. But markets seemed to believe he had signaled an imminent pause in the Fed’s grueling, two-year-plus, credit-tightening campaign. In response, the Dow posted its second 200-point rally of the year — its second 200-point rally in a month, in fact, after enjoying only one of those in the prior two years — pulling back above 11000 and briefly making all seem almost well with the world, or at least Wall Street’s corner of it.

But then came Thursday and Friday, when stocks refused to continue the rally, choosing instead to focus on some disappointing earnings news and worries that the slowdown of which Mr. Bernanke spoke might not be such a great thing after all.

What’s Next

Investors will have plenty of chances to take satisfaction, or not, in earnings, economic numbers, geopolitical developments and the market’s behavior next week. None were satisfying enough this week.

Take earnings, for example. The second-quarter reporting season is going well so far — better than expected, in fact. Before the season began, analysts, on average, expected S&P 500 earnings to grow 12.4% in the quarter. So far, with 152 of the 500 companies reporting, earnings are on track to grow 13.6%, according to Thomson Financial, based on a blend of actual numbers and forecasts. Of the companies reporting so far, 66% have beaten Wall Street forecasts, better than the 60% average since 1994, according to Thomson.

But there has been some resounding bad news on the earnings front, too, involving high-profile companies such as Alcoa, 3M, General Electric, Citigroup, Intel, Yahoo and Dell. There have also been big winners, but their good news hasn’t seemed to pull quite the same weight on Wall Street. “For every Merrill Lynch there’s a Citigroup. For every United Technologies there’s a GE. For every Google there’s a Yahoo,” said Barry Ritholtz, chief investment officer at Ritholtz Capital Markets. “It has become a mixed bag.”

More high-profile reports are due next week from a variety of sectors, including American Express, BellSouth, Merck, Texas Instruments, Altria, AT&T, DuPont, McDonald’s, UPS and Boeing. If they are mostly positive, and if their executives convincingly paint a picture of a generally healthy economy, then stocks might take heart. But more disappointments could reinforce jitters about a slowdown in the economy and corporate profits.

And the market in recent days has seemed mainly to focus on the negative. After pining for months for an end to Fed rate increases, it seemingly got the good news it longed for on Wednesday, but immediately started worrying about the downside. “Even though we got good news out of Bernanke and good news on the earnings side, markets are simply not responding,” Hugh Johnson, chief investment officer of Johnson Illington Advisors, told CNBC. “That’s a very negative sign.”

So one of the most important gauges the market will watch next week is its own behavior. How will it react, for example, to any positive economic news? Will it breathe a sigh of relief that the slowdown may not be so bad, or will it fret that Bernanke & Co. will soon be inspired to tighten again?

And always looming in the background will be the conflict in the Middle East. If that expands and has a significant effect on oil prices, then all bets will be off. If it doesn’t, then stocks might enjoy a bit of a relief rally. But the fundamentals will likely reassert themselves soon enough, and they will be the key to whether stocks can sustain a charge or remain stuck in their rut.

Economic Data
The week will be mercifully free of Fed speeches, but there will be plenty of eye-catching economic news. Perhaps most meaningful for the economy will be the National Association of Realtors report on preowned-home sales, due on Tuesday, and the Commerce Department report on new-home sales, due Thursday. Both are expected to decline. Of course, housing weakness is “not news” to Wall Street, pointed out John Davidson, president of PartnerRe Asset Management.

Perhaps more critical to the market’s mood — though less economically important — will be the two measures of consumer confidence due next week. The Conference Board’s confidence number is due Tuesday and is expected to weaken. The University of Michigan’s updated sentiment index for July is due Friday and is expected not to change. Consumers don’t always spend the way they feel, and economists read these reports with a salt-shaker at the ready. But consumers hold the key to the economy and corporate earnings, and signs of confidence on their part could bolster shaky sentiment on Wall Street.

Earnings, Other Corporate Events
Earnings season continues in earnest next week, with 168 S&P 500 companies and 10 Dow Jones Industrial Average components scheduled to report.

In addition to the companies listed above, General Motors is due to report Wednesday morning. Analysts expect the world’s biggest auto maker (for now) to report a profit, compared with a year-ago loss, continuing a recent string of good news, in contrast with crosstwown rival Ford, which this week reported an unexpected loss. More good news could help solidify the position of embattled CEO Rick Wagoner.

Also reporting next week are the big oil companies, who have been the stars of this and every recent earnings season. BP, ConocoPhillips, Chevron, Exxon Mobil and Royal Dutch Shell are expected to report a whopping $33.6 billion combined, the Associated Press reports, an industry record. That should make them more popular than ever with a public paying nearly $3 a gallon for gas.

• See a complete earnings calendar for the week.

Motorola hosts an analyst meeting on Tuesday, and Microsoft holds an analyst meeting on Thursday. Topps shareholders meet on Friday, presumably to swap baseball cards and tips for fighting off hedge funds.

The IPO market has been an unwelcoming place lately, but some new issues plan to come to market next week, including physician-staffing service CHG Healthcare Services, gas-storage equipment maker Chart Industries, specialty-finance company Crystal River Capital, natural-gas explorer GeoMet and Mumbai outsourcing firm WNS (Holdings) Ltd.

Politics and Policy
U.S. Secretary of State Condoleezza Rice will begin a trip to the Middle East on Sunday, but she has thrown cold water on expectations for a quick end to the tensions there.

President Bush plays host to Iraqi Prime Minister Nuri al-Maliki at the White House on Tuesday and U.K. Prime Minister Tony Blair on Friday.

On Tuesday, the U.S. Chamber of Commerce hosts a half-day conference on the business community’s preparedness for a pandemic outbreak.

Also on Tuesday, the Senate Banking Committee hosts a hearing on hedge-fund regulation, featuring SEC Chairman Christopher Cox.

Lawmakers will debate a pension-reform bill throughout the week, with a House vote possible by the end of the week.

And Japan is expected to formally announce the resumption of U.S. beef imports next week.

Under the Radar
U.S. lawmakers could take a big step next week toward removing a longstanding ban on drilling for oil and natural gas in certain federal waters in the Gulf of Mexico. The Senate is expected to begin debate on a compromise bill that will keep the ban in some areas and offer some revenue to coastal states that have long opposed more drilling. A vote could come as early as Wednesday. The House has already passed a similar bill, and Republican leaders in Congress want to get a bill signed into law before the November election.

Write to Mark Gongloff at [email protected] and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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