Concrete steps by new president could offset the pessimism settling over market
By ANDREW MARKS
NEW YORK CORRESPONDENT
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IT appears that fourth quarter earnings will continue to be poor while first quarter outlooks from Corporate America are grim. Normally, this would suggest that the bad results that have dogged US stocks for the past two weeks will continue that run.
But with newly installed President Barack Obama appearing to be moving quickly to take the reins of the efforts to right the sinking economy and thaw out the frozen solid credit markets, Wall Street could experience a bounce this week.
'In a way the past two weeks of severe losses and rising fear and pessimism on the part of investors have set the perfect stage for an Obama relief rally this week,' observed Marc Pado, chief investment strategist at Cantor Fitzgerald. 'But the new administration will have to offer more than just words of reassurance that it has a plan,' he cautioned.
Specifically, US equity market investors and traders will be looking for further signs that the president's proposed US$825 billion stimulus plan is making steady progress in Congress, and perhaps even more importantly, Wall Street is waiting for a pronouncement on how the new administration plans to administer the second phase of the Troubled Asset Relief Programme.
'Clearly, there's a need for the government to come up with a more effective way to use this next US$350 billion to get credit flowing again. The perception on both Wall Street and Main Street is that the first US$350 billion has not been spent very wisely,' said Timothy Lamont, an economist at Research Analytics.
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Signs of progress on the US$825 billion government spending scheme have been coming steadily in recent days. Over the weekend President Obama released new details on his proposed stimulus plan and publicly pressed Congress to adopt legislation for it quickly. Last Thursday, it was passed by the House Appropriations Committee and House Speaker Nancy Pelosi expects to bring the plan to the floor this week. In the Senate, the Finance Committee said that it will consider the package tomorrow. President Obama reiterated his belief that Congress is on target to approve the plan by the President's Day holiday on Feb 16.
Traders also seemed more focused on how the new president will use the TARP funds than the stimulus bill. 'While people are impatient to see the spending bill passed, I think there's a fair degree of certainty that it's going to happen, while there's so much anxiety around what's happening with the banks now that it's very important to Wall Street to find out what the president is going to do about them,' explained Jim Awad, managing director at Zephyr Management. The buzz on the Street is that the Obama Administration is leaning towards using the second phase of TARP to form a 'bad' bank, or aggregator bank to hold banks' toxic assets, and could make an announcement to that effect as early as this week.
On Friday, hopes of new rescue plans struggled against the reality of a huge round of new losses, disappointing earnings and a troubled outlook for the year from Microsoft.
The blue chip Dow Jones Industrial Average closed the week at 8,077.56, a loss of 2.5 per cent. The S&P 500 slumped 2.1 per cent to 831.95, while the Nasdaq finished at 1,477.29, a 3.4 per cent skid from the previous week's close.
If US stocks are to avoid a third consecutive week of heavy losses, investors will have to navigate their way through a minefield of earnings reports and economic data.
Some 137 companies from the S&P 500 are expected to report results this week, including 12 Dow components.
Today, three of those blue chips - Caterpillar, American Express and McDonald's - are scheduled to report. Tomorrow brings profit reports from Halliburton, Kimberly Clark, Tyson Foods and Texas Instruments, Verizon, Bristol-Myers Squibb, Hershey, US Steel, EMC, and Siemens.
On Wednesday, featured companies include AT&T, Boeing, Pfizer, Wells Fargo, General Dynamics and Starbucks.
It's 3M's turn on Thursday along with Eli Lilly, Royal Dutch Shell, Colgate-Palmolive, Ericsson, International Paper, Amazon.com and Altria.
The flow slows down a bit on Friday, but oil behemoths Chevron and Exxon are scheduled to report, along with Procter and Gamble, and Honeywell.
Investors should take note that once American Express is out of the way today, this big week in earnings is mostly free of reports from the embattled financial sector, which sold off more than 7 per cent last week, offering a measure of relief on the profit picture. 'All sectors of the economy are clearly getting hit hard right now, but the financials are still way out in the lead, so there is a possibility that we'll get a little positive boost from earnings this week,' said Mr Awad.
It's unlikely investors will find much relief in economic news. Existing home sales leads off the agenda today, along with leading economic indicators.
Tomorrow offers up the year's first Federal Reserve interest rate policy-making committee meeting and Wall Street will have its antennae up for anything interesting in the committee's policy statement.
The January consumer confidence numbers also come out that day, followed by a quiet day on Wednesday before Thursday's slew of reports: durable goods and new-home sales data for December, as well as the weekly report on jobless claims.
On Friday the preliminary read on gross domestic product for the fourth quarter is due out, with economists expecting as much as a 5 per cent decline in GDP.
Unless Washington rides to the rescue again, it all spells another rugged week for Wall Street.
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