While first-quarter earnings have been relatively strong so far, there are enough questions, especially regarding consumer spending, to make investors pause. Combine that with lingering inflation worries and another rise in oil prices, and you have a jittery Wall Street that seems to be ready to sell off at the slightest provocation.
That happened Friday, when geopolitical concerns resurfaced — stocks slid on reports that North Korea might test a nuclear weapon.
The fact that stocks ended last week higher — thanks to Thursday’s rally, the best in two years — shouldn’t be taken as a sign that things are looking better. Investor sentiment remains mixed at best, and the most seemingly mild news has caused selloffs in individual stocks, entire sectors, and even the whole market.
Some strategists and analysts call such times “the wall of worry,” and it’s up to investors to gain enough confidence in the economy and corporate America to let their worries go. For that to happen, investors will need to see strong economic data and unreservedly positive earnings — several hundred companies are reporting this week — if the markets are going to rise to where they were just two weeks ago.
Despite the unrelenting uncertainty, Wall Street finished the week with modest gains, and bulls can point to a strong performance from the Nasdaq composite index, which has lagged the other indexes. For the week, the Dow Jones industrial average rose 0.7 percent following Thursday’s 206-point gain, the Standard & Poor’s 500 index was up 0.83 percent, and the Nasdaq climbed 1.26 percent.
Investors will have a chance to see how higher energy prices could affect the economy through the coming week’s economic data.
On Monday, the Conference Board will release its consumer confidence index in April. With the stock market tumbling and oil prices rising last month, economists expect the index to fall to 98 from a February reading of 102.4.
The effect of higher energy prices could come through in the first reading on first-quarter gross domestic product, due Wednesday. The GDP is expected to grow at an annual rate of 3.5 percent, down from 3.8 percent in the fourth quarter of 2004 — but some analysts believe GDP could even be lower.
Earnings from energy, telecom
While the energy sector has been one of the best performers of 2005, most petroleum companies are off their early March highs as oil prices have gyrated. Exxon Mobil, which reports earnings Thursday, has fallen 7.7 percent from its 52-week high of $64.37 on March 9, closing Friday at $59.42. The Dow component is expected to earn $1.18 per share, up from 83 cents in the first quarter of 2004.
Two major telecom companies are also reporting earnings in the week ahead. SBC Communications, soon to merge with AT&T, is expected to earn 33 cents per share, down from 37 cents a year ago, when it reports on Monday. SBC has slipped steadily since its 52-week high of $27.29 on Oct. 5, falling 15 percent to close Friday at $23.20. Much of those losses, however, can be attributed to the AT&T purchase, since traders often sell the buyer in hopes of picking it up again later at a cheaper price.
Verizon Communications is also going through a merger, though it remains uncertain if Verizon will be able to land MCI, which bailed out of its previous deal with Verizon over the weekend in favor of a much higher deal from Qwest Communications. Verizon stock also has fallen from its late 2004 high, dropping 19.4 percent from its 52-week high of $42.27 on Nov. 12 to close Friday at $34.06. The company, reporting on Wednesday, is expected to earn 60 cents per share, up from 58 cents per share last year.
Other notable companies reporting this week, the busiest week of the earnings season, include Boeing, Microsoft and Procter & Gamble.