Stocks: Trying to reverse the slide

01/24/2101
NEW YORK (CNNMoney.com) -- After the worst week on Wall Street in almost a year, investors will return to work looking for greater clarity -- from Washington, from the banks and from corporate America.

The Dow plunged 4% last week, its worst week since March 6, 2009, the bottom of the bear market.



Stocks got hit from all sides: The White House's proposal to impose more restrictions on banks; China's moves to rein in economic growth; and questions about whether Federal Reserve chairman Ben Bernanke will win confirmation for a second term. His first term ends Jan. 31.

"Obama talking about banking, China talking about limiting lending and the questions about Bernanke all added a level of uncertainty to the market that wasn't there before," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

That uncertainty sparked the selloff last week, but it doesn't mean that it will continue in the week ahead.

"This was a scary pullback, but we've seen a series of these 5% to 7% selloffs since the market bottomed in March of last year," Detrick said.

"Each time investors used that as an opportunity to put more money back in place and I think you can still give the bull market the benefit of the doubt," Detrick said.

The week ahead brings the latest Federal Reserve policy meeting, the first reading on fourth-quarter GDP growth, the president's State of the Union address and profit reports from a host of major companies.

Company financial results: More than a quarter of S&P 500 companies are due to report results this week, including Dow components Microsoft (MSFT, Fortune 500), Chevron (CVX, Fortune 500), DuPont (DD, Fortune 500) and Verizon (VZ, Fortune 500).

Ford Motor (F, Fortune 500) is expected to report a big profit versus a loss a year ago. Yahoo (YHOO, Fortune 500) is expected to report a drop in profits and Amazon.com (AMZN, Fortune 500) to report a rise.

So far, strong results have been met with indifference by investors. Google (GOOG, Fortune 500), IBM (IBM, Fortune 500), Intel (INTC, Fortune 500) and American Express (AXP, Fortune 500) all reported better-than-expected results, only to see their stocks tumble.

In the wake of the big stock rally of 2009, investors are looking for more than just improved earnings on the back of cost-cutting.

"The overwhelming majority of big companies have sold off after their earnings even if the results were good," said Donald Selkin, chief market strategist at National Securities.

"This historic rally may have discounted all the good earnings and now the companies are going to have to work to earn further stock gains," he said.

So far 18% of the S&P 500, or 92 companies, have reported results. Earnings are on track to have risen 193% from a year ago and revenue 5%, according to the latest from Thomson Reuters. But a lot of that is due to easy comparisons to an abysmal fourth quarter of 2008, the worst in history, according to Thomson.

A lot of the improvement this quarter is especially due to a big comeback for the financial sector. Strip out financial results and year-over-year S&P 500 earnings are up just 9% and revenue growth is flat.

The Fed: The Federal Reserve's two-day meeting gets underway Tuesday, with an announcement on interest-rate policy expected Wednesday afternoon. The Fed, led by Chairman Ben Bernanke, is widely expected to vote to hold interest rates steady at historic lows near zero.

However, as always, what the bankers say in the statement about the health of the economy will be key, especially if they hint at when they might begin to raise interest rates.

A sustained period of historically low interest rates -- combined with the infusion of trillions of dollars into the financial system -- has been credited with helping the country avert a bigger disaster. The Fed's actions are also seen as having boosted the stock market in the past 9 months.

But some dissent in the Senate about whether or not Bernanke should serve a second term could cloud the meeting.

In December, Bernanke received a vote of confidence from the Senate Banking Committee. However, some Democratic Senators say they plan to vote against approving a second term, leaving White House and Senate leaders struggling to rummage up the needed support.

In addition to the Federal Reserve, investors will also be focused on the week's economic news including reports on housing, employment, consumer confidence and durable goods orders. The biggest report of the week is the first reading on GDP growth in the fourth-quarter, due out Friday.

On the docket
Monday: Sales of existing homes are expected to have fallen to a 6 million unit annual rate in December from a rate of 6.54 million units in November, according to a consensus of economists surveyed by Briefing.com. The report from the National Association of Realtors is due out in the morning.

Tuesday: The consumer confidence index from the Conference Board is due out shortly after the start of trading. The index is expected to have dipped to 52.9 in January from 53.3 in December.

The S&P/Case Shiller Home Price index, covering 20 of the largest metropolitan areas in the nation, is expected to show that prices fell 5.2% in November from the previous month.

The Congressional Budget Office has its 2010 budget and economic outlook press briefing, starting at 11:00 a.m. ET.

Wednesday: New home sales likely rose in December to a 370,000 unit annual rate from a 355,000 unit annual rate in November, according to forecasts. The report from the census bureau is due out shortly after the start of trading.

The weekly crude oil inventories report from the government is due in the morning, while the Fed announcement is due in the afternoon.

Reportedly, Apple will unveil its much-anticipated new Tablet computer in San Francisco in the afternoon.

The World Economic Forum begins in Davos, Switzerland, and runs through Sunday.

In the evening, the President gives the State of the Union address, starting at 9:00 p.m. ET.

Thursday: December durable goods orders are expected to have risen 2% in the month versus a rise of 0.2% in the previous month.

The weekly reading on initial jobless claims is also due although no estimates were available at the time of this publication.

Friday: The initial reading on gross domestic product growth in the fourth quarter is due out Friday morning from the government. GDP is expected to have grown at a 4.6% annualized rate after growing at a 2.2% rate in the third quarter.

The consumer sentiment index from the University of Michigan is due shortly after the start of trading. The index is expected to have risen to 73 in late January from 72.8 in early January.