July 20, 2009

Economic Outlook: Quarterly reports influx

The U.S. stock market faces more than 100 corporate earnings reports this week after earnings and forecasts last week helped major indexes rise 7 percent.

Standard & Poor's 500 index companies issuing their April-June quarterly reports Monday include industrial manufacturer Eaton Corp., toymaker Hasbro Inc., oil services giant Halliburton Co., semiconductor developer Texas Instruments Inc. and Salt Lake City bank holding company Zions Bancorp.

Other big names due to report this week include Amazon.com Inc., American Express Co., Apple Inc., Boeing Co., Caterpillar Inc., Coca-Cola Co., DuPont Co., eBay Inc., McDonald's Corp., Microsoft Corp. PepsiCo Inc., 3M Co. and Starbucks Corp.

In all, 143 S&P companies are to report.

Last week's impressive earnings and forecasts from Goldman Sachs Group Inc., IBM Corp. and Intel Inc. helped end a four-week losing streak for the Dow Jones industrial average.

The Dow gained 7.3 percent, its best week since the middle of March, while the S&P 500 climbed 7 percent and the Nasdaq Composite Index jumped 7.4 percent.

Of the 55 S&P 500 companies reporting results so far, some 70 percent beat most analysts' expectations, 10 percent were in line with them and 20 percent were below most estimates.

U.S. stock futures advanced Monday morning in anticipation of the reports and on news that CIT Group Inc., a leading U.S. lender to small and midsize businesses, secured $3 billion in last-minute rescue financing.

The deal, approved Sunday night, is intended to give CIT several weeks to restructure its business model and shrink its voluminous debt load after the company failed to win crucial concessions from Washington regulators.

Less than two hours before the start of trading, Dow futures were up 62 points to 8,759, S&P 500 futures rose 7.3 percent to 944.2 and Nasdaq 100 futures rose 10 percent to 1,538. Changes in futures don't always accurately predict market moves after the opening bell.

European shares were higher in midday trading, with London's FTSE 100 index of the 100 most highly capitalized British companies gaining 1.2 percent to 4,422, while Frankfurt's DAX blue chip stock market index rose 1.5 percent to 5055 and the benchmark French stock market index CAC 40 in Paris advanced 1.7 percent to 3271.

In Asia, Hong Kong's Hang Seng index gained 3.7 percent at 19,502.37, finishing at its highest level since September 2008. Japanese markets were shut for the Marine Day holiday.

Also on the docket this week is U.S. Federal Reserve Chairman Ben Bernanke, who will appear before Congress twice to deliver his semiannual testimony on the U.S. economic outlook and monetary policy.

He will testify before the House Financial Services Committee Tuesday and the Senate Banking Committee Wednesday.

Analysts say investors will listen for clues about the Fed's U.S. assessment of where the U.S. economy stands and where it's going -- and, importantly, when it thinks the economy can be weaned from the emergency supports put in place last year and this year as the financial crisis intensified.

We expect Chairman Bernanke to present a more upbeat outlook on activity and inflation, Barclays Capital research analyst Dean Maki and colleagues wrote in a research note. Barclays Capital is Barclays Bank PLC's investment banking division.

U.S. unemployment is currently at a 26-year high of 9.5 percent. The Fed has predicted unemployment will top 10 percent by the end of the year.

The U.S. Labor Department said Friday unemployment already has topped 10 percent in 15 states and the District of Columbia in June.

The United States has lost about 6.5 million jobs since the recession began in December 2007.

Other reports this week include the Conference Board's June index of leading indicators, set for release Monday, and the National Association of Realtors' report on sales of existing homes, set for release Thursday.

The Conference Board index, which points to the direction of the economy over the next three to six months, is expected to show a 0.5 percent rise after a 1.2 percent increase in May and a 1.1 percent rise in April, many market analysts estimate.

Sales of existing homes are expected to climb to one of the highest rates since last fall.