RPT-Wall St Week Ahead: Earnings deluge may stall rally

By Leah Schnurr

June 18, 2010 Updated Apr 19, 2009 at 12:10 PM EDT

NEW YORK (Reuters) - A torrent of earnings this
week threatens to swamp Wall Street's impressive rally, as
results so far have shown the corporate outlook remains murky
and investors worry that better-than-expected results from
banks still don't prove the sector is stable.

Investors will get a look at the performance of a swath of
major companies, including everything from Wells Fargo
to Caterpillar, providing a broad look at the economy's
health.

The market has been particularly sensitive to bank earnings
after their dire straits brought the market to a 12-1/2 year
low in early March. The latest quarter has come under increased
scrutiny after dismal fourth-quarter results that showed the
economy was gripped by panic at the end of last year.

Last week, Goldman Sachs, JPMorgan Chase & Co
and Citigroup all reported better-than-expected
results for the first quarter, but analysts were wary of the
results' sustainability and said they did not signal an all
clear for the sector at the heart of the economic crisis.

"I think the market is somewhat skeptical on these
better-than-expected financial earnings and are looking forward
to getting more detail on that," said Scott Wren, senior equity
strategist at Wachovia Securities in St. Louis.

Earnings for S&P 500 companies are expected to decline 37.4
percent in the quarter, according to Thomson Reuters data, with
all 10 sectors taking a hit.

Economic indicators will be relatively light in the coming
week, keeping earnings on center stage. But investors will be
looking at data on new and existing home sales, as well as
durable goods orders to see if the reports can extend the
optimism sparked last month by signals that the economic slump
may be waning.

BANKS AND BLUE CHIPS GALORE

Banks, which began reporting earnings last week, will
continue to be in focus, with results from Bank of America
, Wells Fargo and Bank of New York Mellon
among the major ones.

Bank of America was among several banks that said last
month they had made money at the beginning of the year, helping
spark the rally that has seen the broad S&P 500 rack up six
consecutive weeks of gains and an advance of close to 30
percent since early March.

Even more important than the numbers will be the guidance
company executives give on their outlook going forward as
market watchers try to get a handle on when the economy and
corporate fortunes may improve.

"Visibility remains murky and what people are doing is
trying to downplay expectations a little bit," said John
Praveen, chief investment strategist at Prudential
International Investments Advisers LLC in Newark, New Jersey.

"If you look at JPMorgan and Citigroup, even though they
beat expectations, they said that looking ahead, times are
going to be challenging."

The last earnings season was marked with companies
withdrawing guidance or refusing to give any due to the
inability to predict the depth and longevity of the financial
crisis.

In all, 11 of the 30 blue-chip companies that make up the
Dow will report this week, including International Business
Machines, Caterpillar Inc, Merck & Co Inc,
Boeing Co and McDonald's Corp.

Wells Fargo announced its preliminary results earlier in
the month, saying it expects to post a record $3 billion profit
for the quarter.

HOME SALES MAY HINT WORST IS OVER

But with so much optimism already pushing the S&P 500 up
28.5 percent from the bear market low, investors could take the
opportunity to book profits this week.

"8,300 on the Dow suggests to me we've had such a nice run,
the market is going to, at minimum, trade sideways for a while,
if not undergo a more pronounced pullback (this week) after the
expirations run its course," said Todd Clark, managing director
of stock trading at Nollenberger Capital Partners in San
Francisco.

Indeed, CitiFX analysts said in a note that with "so much
perfection priced in," such as optimism over bank earnings and
the economy, mark-to-market accounting changes, proposed
changes on the uptick rule and the U.S. Treasury Department's
toxic asset plan, the question is where the next piece of good
news is going to come from.

Without another dose of "good news," the market could
struggle to continue charging ahead from its March bear market
lows, they added.

However, a pullback could be seen as a buying opportunity
for investors on the sidelines who missed out on the current
rally and have been waiting for a chance to get back into the
market.

Reports on new and existing home sales and durable goods
orders will be watched to see if they build on last month's
signals that the recession may have hit bottom.

"The one focus will be on whether these green shoots that
we saw last month will take deeper roots or whether they will
have another cold spell that will freeze them out," Praveen
said.

Other data on tap includes leading economic indicators for
March and weekly initial jobless claims.

(Additional reporting by Chuck Mikolajczak; Editing by Jan
Paschal)
(The Wall St Week Ahead column appears weekly. Comments or
questions on this one can be e-mailed to
leah.schnurr@thomsonreuters.com)




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