The Internet home of: Subscribe to Money | Free Trial
SYMBOL LOOK-UP Entire Site Fortune Money Business 2.0 Fortune Small Business Web
HOME NEWS MARKETS TECHNOLOGY JOBS & ECONOMY PERSONAL FINANCE AUTOS REAL ESTATE SMALL BUSINESS LISTS Main
Companies
Economy
World Business
Newsmakers
Fun Money
Corrections Main
Portfolio
News
Indexes
Pre-Market
After-Hours
Bonds
Commodities
Currencies
Actives
Gainers
Losers
Earnings
Hot Stocks
Sivy on Stocks
Investor Research Center Main
Personal Tech
Sectors & Stocks
Fortune 500 Tech
Top Tech Companies
B2Day Blog
Game Over Main
Economic Calendar
Fed Focus
Your Job 2006
Employment Rates
Cost of Living Tool
Find a Job Main
Retirement
Mutual Funds
ETF Center
Five Tips
Sivy on Stocks
College
Insurance
Taxes
Portfolio
Money 101
10 Resolutions Main
New Cars
Used Cars
Financing
Reviews
Tips & Advice Main
Best Places to Live
Calculators
Latest home prices
Money 101
Mortgage Rates
Real Estate Tips Main
Hot Startups
Best Bosses
Garage Inventors Guidebook
Fastest-Growing Companies Main
Fortune 500
Global 500
Best places to live
Best companies to work for
Boom towns
Sivy's 70 Top Stocks
MONEY's Ultimate Funds
Best Places to Retire
Fastest-Growing Companies
10 Resolutions
7 Star Funds
Earnings...more bad news coming? Disappointing earnings from some big names lead investors to wonder what lies ahead. By Amanda Cantrell, CNN/Money staff writer January 22, 2006: 7:08 PM EST
NEW YORK (CNNMoney.com) - Is that it for the rout? Or has it only just begun?
Negative earnings surprises last week that ranged from disappointing to disturbing put an abrupt end to the 2006 market rally...and they raised concerns about what could come this week. Key earnings reports are expected from several large companies, including American Express, Texas Instruments and Microsoft.
Market Analysis
• The new bond king
• Should you load up on gold?
• Stocks: Why the sky isn't falling
Market News
• Oil charges to $69
• Gold climbs to 25-year high
• Google stock takes a tumble
Quick VoteWill the stock sell-off continue? Yes No or View results
In addition, crude oil on Friday jumped $1.52, or over 2 percent, to $68.35 a barrel as tensions mounted over Iran's nuclear ambitions. Crude prices have jumped more than 8 percent this year, bringing them within striking distance of the record $70.85 hit Aug. 30 after Hurricane Katrina struck.
Weak results last week came from Intel, while Citigroup, General Electric, IBM and Yahoo reported fair results that were slightly below forecasts. Motorola, Apple and Yahoo! issued disappointing forecasts.
So far, the response from investors has been swift and severe. Following intense selling Friday afternoon, the Dow and the Nasdaq finished the week down nearly 3 percent. The losses put the Dow into negative territory for the first time in 2006.
Jim Melcher, who runs a hedge fund from his investment firm Balestra Capital in New York, thinks the weak reports are an early sign that earnings growth is due for a decline. "Earnings have been really quite good for three years, but that's pretty much over," he said.
Melcher thinks the weak earnings results are the effect of a slowdown in consumer spending that started in earnest a couple of months ago and is just now starting to play out in the economy. Melcher cites a number of factors that point to continued weakness.
"Short-term rates have moved up to highest level since they started, energy prices have moved up, and the American consumer has done all the borrowing he can do -- the house is no longer the cash machine it once was," said Melcher, who has been long energy for three years and is currently shorting home builders and mortgage lenders.
Melcher added that actual wages, adjusted for inflation, have risen only very modestly in the past five years, adding to a consumer-spending slowdown.
Kevin Landis, president and CEO of San Jose, Calif.-based Firsthand Capital Management, said he thinks that the negative reaction obscures the fact that some of the earnings reports were actually quite good.
"It's not as bad as one might infer, it's just not as good as people's hopes were," Landis said. "Even the companies who are doing the worst haven't blown up too badly, and others came out and said 'Let's not get too carried away,'" he said of the companies who issued lower-than-anticipated forecasts.
Alec Young, equity-market strategist in the equity research division of Standard & Poor's, said it is too early to call the entire earnings season a bust. Nonetheless, Young said S&P's forecast for 13 percent earnings growth for the fourth quarter may have to come down once more data become available.
In addition, Young thinks this week's earnings news has put a lid on the market. "We can forget about [the market] going up -- the question is will (next week's) news send the market down," he said. "It's too early to write off the quarter and extrapolate that broad based earnings are going to be weak. But it is a concern, and we do feel it's thrown enough of a curve ball at investors that the recent gains we'd seen are over."
Michael Church, portfolio manager at Yardley, Penn.-based Church Capital Management, said that while Friday's losses were "not pretty," he doesn't think this week's results will necessarily translate into poor showings next week. Church said he'll be paying particularly close attention to Texas Instruments and Microsoft, both of which he owns shares in.
"Obviously, those are going to be crucial," he said. "If both of them were to slip up, I'd certainly hope (the markets won't react) as badly as they did today. But I think TI will see some strength." He also expects strong results from Corning, which reports on Tuesday.
Key earnings in the week ahead Monday: American Express (Research), Ford (Research), Texas Instruments (Research)
Tuesday: 3M (Research), DuPont (Research), Johnson & Johnson (Research), Lucent (Research), McDonald's (Research)
Thursday: Microsoft (Research), Verizon (Research)
Key economic reports Monday: Leading economic indicators
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)