Saturday October 3, 06:04 PM
Jittery Wall Street girds for corporate earnings
NEW YORK (AFP) - Having lost some of its swagger from a powerful six-month rally, Wall Street heads into corporate earnings season with renewed skittishness about prospects for an economic recovery.
The latest economic data has cast fresh doubt on the notion of a strong recovery from recession, and investors will look to the upcoming quarterly reports for signs of whether Americans are emerging from a long retrenchment.
In the week ending Friday, the blue-chip Dow Jones Industrial Average slid 1.84 percent to 9,487.67, in a second straight weekly loss after the indexes hit 11-month highs in September.
The technology-rich Nasdaq composite (NASDAQ: news) sank 2.05 percent to 2,048.11 and the Standard & Poor's 500 broad-market index slid 1.84 percent to 1,025.21.
The losses came on disappointing economic news, highlighted by a shock unemployment report Friday that showed the labor market reversing course after several months of improvement.
Official data showed job losses accelerated to 263,000 in September and the unemployment rate rose to 9.8 percent, pouring cold water on the notion of a quick and strong recovery from the nearly two-year-old recession.
"The market practitioners who believe the recovery is based on sand are seeing a lot of evidence in this and other recent data," said Cary Leahey, senior economist at Decision Economics.
The market now looks to corporate earnings, starting with Wednesday's report from aluminum giant Alcoa -- the first of the blue chips to report results -- for clues on the direction of economic activity.
"The looming question is whether investor expectations are now set at a reasonable level or too high considering the challenges that continue to face the US economy," said Fred Dickson, market strategist at DA Davidson & Co.
"We feel comfortable forecasting a nice rebound in corporate earnings even in a weak growth economy as most companies have trimmed costs thereby significantly raising productivity of their workforce during the last 18 months."
The market is still sitting on hefty gains after a solid 15 percent rise in the July-September quarter for the Dow and S&P 500 (news) , and a six-month rally of around 50 percent.
Analysts say the market needs to see evidence the economy is on the mend to add to those gains.
"US equity markets may have racked up their finest third quarter in seven decades, but the low hanging fruit has almost certainly been picked, as the last few days can attest," said Sal Guatieri at BMO Capital Markets.
"Less-bad news no longer will sustain the rally, as the economy must now prove it can sustain a recovery. But the mish-mash of indicators released this week, showing the economy took two steps forward in the summer and a big step back in early fall, was less than inspiring."
RBC Wealth Management analyst Bob Dickey said the rally still has legs since the worst of the economic crisis is over.
"The market is already in a modestly oversold condition, and as such, could bottom and rally again at any time," he said.
"The tendency is for investors to seize upon one big down day and call that the beginning of a bigger correction, but this is the trap the market has been setting up all the way since the March low.
"There have been numerous times the market has snapped sharply back only to recover later, and each of these has led to yet another upleg to new recovery highs," he added.
The stock market's loss was the bond market's gain. The 10-year Treasury bond yield slumped to 3.221 percent from 3.329 percent a week earlier and that on the 30-year bond eased to 4.011 percent from 4.093 percent. Bond yields and prices move in opposite directions.
In the coming week, the market will also ponder a purchasing manager survey of the services sector by the Institute of Supply Management and data on the US trade balance.
Earnings reports are also due from beverage and snacks maker PepsiCo (NYSE: PEP - news) and chemical firm Monsanto.
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