Earnings to decide stocks' fate
Earnings are set to take center stage again next week as more marquee U.S. companies line up to report their quarterly scorecards and investors decide whether to keep pushing stocks higher.
Investors will turn their attention to household names such as American Express Co (AXP.N), Apple Inc (AAPL.O), Boeing Co (BA.N), Caterpillar Inc (CAT.N), Coca-Cola Co (KO.N), DuPont Co (DD.N) McDonald's Corp (MCD.N), Microsoft Corp (MSFT.O), and diversified manufacturer 3M Co (MMM.N) to see what the earnings of these dominant corporations say about the U.S. economy's health.
In the coming week, 143 companies in the Standard & Poor's 500 Index .SPX will report earnings. Results from big manufacturers will give investors the broadest picture yet of the earnings season. So far, banks and technology companies have set the tone.
The latest insight into corporate America's financial strength will come a week after the three major U.S. stock indexes rose 7 percent to wrap up their best week since the middle of March. This week's rally was driven by much better-than-expected earnings from some major companies, including Intel Corp (INTC.O), International Business Machines Corp (IBM.N) and Goldman Sachs Group (GS.N).
The rally has driven stocks back up to near their highs in early June, when the S&P 500 peaked after climbing 40 percent from a 12-year closing low in early March -- only to lose ground later in the month before earnings season kicked off in early July.
For the week, the Dow Jones industrial average .DJI gained 7.3 percent, while the S&P 500 climbed 7 percent and the Nasdaq Composite Index .IXIC jumped 7.4 percent.
"The equity market is the biggest leading indicator for the economy, so what we are going to be looking at is what kind of information is coming out of earnings," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
If some of those big names disappoint, it could be farewell to the rally. On Friday, a less-than-stellar performance from General Electric (GE.N) gave investors reason to be cautious about the potential strength of an economic recovery.
MESSAGE FROM 3M
John Murphy, fund manager at Murphy Capital Management in Gladstone, New Jersey, said investors will start to "look at some of the bigger manufacturing companies." He said 3M, which makes everything from "Post-it" notes to products for aircraft maintenance and has large international operations, will provide valuable insight.
3M is among 12 Dow components set to report earnings in the week ahead.
Thomson Reuters data compiled this week showed a 35.2 percent drop in S&P 500 companies' second-quarter earnings from a year ago, compared with last week's expectation for a decline of 35.7 percent.
Of the 55 S&P 500 companies that have reported results so far, 71 percent beat analysts' expectations, 9 percent were in line with expectations and 20 percent were below estimates.
That's better than the long-term average, which is 61 percent of companies beating estimates in a typical quarter, 19 percent matching estimates and 20 percent missing Wall Street's expectations, according to John Butters, director of the research group at Thomson Reuters.
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