US stocks look set to glide higher this week, as long as strong fourth-quarter profit reports keep on coming.
But if key companies presenting their scorecards this week don't follow through with upbeat forecasts for the rest of the year, investors might look to cash in their gains as the major market indexes crest long-time highs.
"If the current recovery in earnings has legs and continues to be strong, we are only in the early phases of a stock market recovery," said Gordon Fowler, chief investment officer at money manager Glenmede Trust Co, in his latest outlook.
Stocks have soared since last March when the economy showed solid signs of revival and companies got back into the habit of posting higher profits.
But whether that continues depends on more economic growth and reassurance from corporations that higher profits are here for another year at least.
"Companies need not only to beat the current quarter estimate, but lift guidance for the first quarter or full-year 2004 in order to gain investor attention," said Frederic Dickson, chief market strategist at fund firm D.A. Davidson & Co, in his latest stock market commentary.
HARSH MARKERS: This week, computer bellwether International Business Machines Corp satisfied investors on both counts, sending its stock up to a new 52-week high.
But chipmaker Intel Corp, which beat earnings estimates but didn't lift guidance, traded slightly lower - suggesting that very high expectations are already factored into stock prices, especially high-flying technology issues.
Overall, companies met expectations this week, sending the Nasdaq Composite Index to a new 2-1/2 year high on Friday, closing out its sixth week of gains at 2,140.46.
The Standard & Poor's 500 index and the Dow Jones industrial average both wrapped up eight weeks of gains, reaching peaks unseen in almost two years. The Dow ended Friday at 10,600.51, while the S&P 500 ended at 1,139.83.
The stock market will be closed on Monday in observance of the late civil rights leader Martin Luther King Jr.'s birthday, but the shape of the market will come into focus quickly on Tuesday with an avalanche of earnings.
Dow components Citigroup, Johnson & Johnson, 3M and United Technologies are scheduled to report on Tuesday, followed by technology bellwethers Computer Associates and eBay and financial giant J.P. Morgan on Wednesday.
Thursday brings Dow members AT&T, Eastman Kodak and Microsoft.
EYES ALREADY ON 2005: Good earnings are widely expected. But the battle between the optimistic bulls and pessimistic bears is now over what will happen in 2005, according to Fowler.
"There is limited value in knowing that the near-term earnings outlook is good," said Fowler. "Before this year has barely even begun, the market will start to discount economic and earnings events anticipated in 2005."
The future of the economy is also on investors' minds, wondering when the Federal Reserve will raise interest rates, which could put a dampener on consumer spending and the stock market's ascent.
This week is scant on economic numbers, with housing starts data due on Wednesday at 8.30 am (1330 GMT), giving an indication of optimism in the construction industry and an early sign of follow-on demand for consumer goods.
The number of new residential units started in December is expected to fall slightly to 1.96 million, according to economists polled by Reuters, from the 20-year high of 2.07 million reached in November.
On Thursday at 8.30 am (1330 GMT), the government releases the weekly number of people filing for unemployment insurance for the first time. Economists expect the number to rise slightly to 347,000, but stay well below the key 400,000 four-week average level.
At 10 am the same day, the Conference Board releases its closely watched leading indicators gauge. The index, which foreshadows economic activity in the next three to six months, is expected to rise 0.2 percent for December, according to economists polled by Reuters.
Comments
Comments are closed.