 |
|
US stocks might rise this week, just watch for more sub prime stories
|
U.S. stocks could rise this week if the first wave of quarterly earnings inject optimism about results for the period and on economic growth that has surprised on the upside.
Alcoa Inc. , the world's largest aluminum company, kicks off another earnings season on Monday, and results from the second quarter could surprise on the upside because of the weak U.S. dollar.The earnings are going to surprise on the high side, mostly because the dollar has lost ground through the quarter and the analyst community always underestimates this effect.
On average, about half the earnings at companies that make up the benchmark Standard & Poor's 500 Index come from overseas. When a foreign currency is strong, the conversion of earnings from abroad translates into more dollars.So it's a big factor, especially for the larger names, with some exceptions.
Lord Abbett expects overall corporate earnings growth for the quarter to be in the high single-digits, because of the dollar effect.Genentech Inc. the world's second-largest biotechnology company, releases results on Wednesday, and General Electric Co.reports on Friday.
Stocks gained this past week, with the Dow Jones industrial average rising 1.5 percent, the S&P gaining 1.8 percent, and the Nasdaq Composite Index adding 2.4 percent, its best weekly performance since late March.
Stocks may also get a lift next week from the announcement of new takeovers, which have underpinned the stock market because investors take their profits from shares in companies that have been bought and reinvest the proceeds in new shares.
From my point of view, the only problem this week might be more sub prime stories.
Bad bets revealed by some hedge funds in recent weeks may mean other funds will be forced to accept the market's deteriorating views on subprime mortgages and report their own losses soon.Some managers have resisted accepting market views on their assets, claiming declines represent short-term market volatility and not underlying financial value in their subprime bonds, analysts said. Since the bonds trade infrequently, managers' have turned to pricing models that may ignore market sentiment, buoying prices.
But with delinquencies rising on mortgages granted to less creditworthy home buyers, and the U.S. housing market slump seen extending into 2008, dealers are increasingly accepting the reality of market values.
Declines in indices tracking the values of subprime mortgage backed bonds in June mean managers valuing portfolios on a monthly basis have to reveal losses.
Other than that stock market looks optimistic.Although I expect earnings will be worse than expected for some companies and big names, in overall the good expectations will lift the market.With interest rates still relatively low -- the benchmark 10-year Treasury note yielded about 5.19 percent on Friday -- the potential return on stocks is attractive, and rates are low enough to continue to fuel takeovers.It keeps driving home the point that there's a large spread between the cost of debt financing and the return on equity investments.
As long as that spread is so large, it creates a strong incentive for buying stocks.
Data to be released on Friday, especially retail sales for June, will be the macroeconomic focus of the week.If people just focus on the economy picking up and don't worry about the Fed, the market might rise if the earnings are good.
A surprisingly strong employment report about the economy on Friday reinforced a view that the Federal Reserve would keep interest rates on hold.Friday's jobs report "bodes well for the retail sales number, but those month-to-month figures are so erratic that you never know what's helping or hurting them.I believe earnings this year will likely grow between 6 percent and 7 percent, and economic growth will slow because the overall growth trend is down. The overall economy is growing at a slower rate. |
| Tarih
: 09.07.2007 |
|
|
View
All |
|
|
|
|
 |
|
Untitled Document
| |
 |
| |
 |
Copyright
© 2006 Mert TOKER All Rights Reserved. |
|
|
