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Oil prices, economy top Wall Street’s focus

The third-quarter gross domestic product report, the price of crude oil, Friday’s GDP report and the consumer confidence index will be among Wall Street's top concerns in the week ahead.
/ Source: The Associated Press

When will oil prices fall? For investors holding energy stocks, there’s no rush. But with the third-quarter gross domestic product report coming out this week, the rest of Wall Street would prefer sooner rather than later.

Crude oil futures have remained over $50 per barrel for most of October, with no signs of falling back any time soon. And with oil’s steady climb since the summer, energy stocks have performed exceptionally well. Earnings due this week from Exxon Mobil Corp. and ChevronTexaco Corp. should give investors in those stocks further reason to cheer.

But for the economy as a whole, oil prices have already cut into consumer spending as well as corporate profits, and it’s become difficult for companies to raise prices to cover higher energy costs when consumers don’t have the means to pay them.

On Friday, the Commerce Department will issue its advance GDP report for the third quarter, which saw prices rise from about $36 per barrel to $50. Should that number come in lower than economists expect, the impact of oil prices on the economy will be readily apparent — and won’t bode well for the current quarter, either.

Last week, a mix of earnings reports and the continued surge in oil prices kept stocks down, as many investors held off on large bets until the effects of oil could be seen in GDP figures. The upcoming presidential election also kept many investors out of the market until a winner could be chosen, if not predicted. On the bright side, strong earnings in the technology sector helped the Nasdaq composite index to a small gain for the week.

For the week, the Dow Jones Industrial average lost 1.77 percent, and the Standard & Poor’s 500 dropped 1.12 percent, while the Nasdaq gained 0.19 percent.

Economic data: Durable goods, confidence
Friday’s GDP report will certainly dominate the market, especially as major earnings reports begin to trail off. Economists are expecting an optimistic 4 percent increase in the nation’s GDP, which is the measure of goods and services produced in the United States. That’s up from a 3.3 percent hike in the second quarter.

On Tuesday, the Conference Board is scheduled to release the latest reading of its consumer confidence index. The index is, not surprisingly, expected to fall to 94.4 in October from a 96.8 reading in September.

Finally, the Commerce Department will report on orders of durable goods — products expected to last longer than three years — which is considered a sign of future manufacturing growth. Orders are expected to have risen 0.5 percent in September, up from a 0.5 percent decrease in August.

Earnings: Big Oil, Verizon set to report
With oil prices making record highs on a weekly basis, petroleum giants Exxon Mobil and ChevronTexaco have been two of the market’s top performers. From a low of $40.01 on March 24, Exxon Mobil has risen 21.7 percent to close at $48.70 on Friday. The company, which is scheduled to report its results before Thursday’s session, is forecast to earn 84 cents per share for the third quarter, up from the 55 cents per share posted a year ago.

Likewise, ChevronTexaco has seen a decent run-up in its share price as well, closing Friday at $53.34, up 26 percent from its 2004 low of $42.34 on March 25. Reporting Friday before the session, ChevronTexaco is expected to earn $1.31 per share, up from a profit of 93 cents per share a year ago.

Among other notable companies announcing earnings in the week ahead, Verizon Communications Corp. is actually expected to post a lower profit than a year ago when it announces its results Thursday morning. Analysts are calling for profits of 64 cents per share for the quarter, down from 67 cents per share last year. Verizon stock has fluctuated widely this year, ranging from $23 to $29 per share, as the Dow component has worked hard to trim costs and boost its wireless business. Shares of Verizon closed Friday at $26.28, down 82 cents.

Media conglomerate Viacom Inc., announcing earnings Thursday before the session, has seen its stock fall from a 2004 high of $44.61 on Jan. 5 to close at $34.39 on Friday, a loss of 22.9 percent. The company is expected to earn 41 cents per share for the third quarter, up slightly from the 40 cents per share it posted a year ago.

Other companies posting earnings include:

  • American Express Co. on Monday, expected to earn 69 cents per share, compared with 59 cents a year ago;
  • Halliburton Co. on Tuesday morning, expected to earn 36 cents per share, compared with 32 cents a year ago;
  • Northrup Grumman Corp. on Wednesday before the session, forecast to earn 71 cents per share, up from 61 cents per share a year ago; and
  • Aetna Inc. on Thursday morning, expected to earn $1.73 per share, up substantially from the $1.27 per share profit from a year ago.