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Earnings Season To Pick Up Steam
By the end of the week we should have a reasonably good idea of how the fourth quarter earnings season will go. The firms reporting this week include several icons of U.S. business, including: Apple (AAPL), Google (GOOG), International Business Machines (IBM), Goldman Sachs (GS), Wells Fargo (WFC), General Electric (GE) and Freeport McMoRan (FCX). That is an interesting cross-section of the market that may provide clues to the overall direction of the economy. While things will be busy on the earnings side, the same is not true of the economic data front, where it will be a relatively quite week. The most interesting data will be regarding housing as we get Housing Starts and Building Permits, Existing Home Sales and the National Association of Homebuilders index. We will also get two of the regional “mini-ISM” numbers. Tuesday * The Empire State Index is expected to rise to 12.0 from 10.57. It is sort of a mini-ISM, just covering New York State, only with zero as the dividing line between expansion and contraction. Thus the economy is expected to continue to expand in NY and at a slightly faster pace than last month. * The National Association of Homebuilders index is expected to remain at 16, an awful showing. Any reading below 50 indicates a contraction. While off its all-time low of 9 set in January 2009, it is still pointing to a very weak environment for the homebuilders. Wednesday * Housing Starts are expected to have slipped slightly to a seasonally adjusted annual rate of 550,000 from 555,000 in November. The good news is that the low level of housing starts means that less housing is being added to the current bloated inventory. The bad news is that normally homebuilding is one of the main forces pulling the economy out of a recession, and that is simply not happening this time. The very low level of housing starts is one of the key reasons job growth is so sluggish. * There might be a very small glimmer of hope for the homebuilders, though, as Building permits -- the best indicator of future housing starts -- are expected to rise to 560,000 from 530,000. While that is a nice percentage increase, it is still an extremely low level. Thursday * Existing Home Sales are expected to increase to a seasonally adjusted annual rate of 4.80 million from 4.68 million. That should help bring the months of supply down from the November rate of 9.5 months. That level is still extremely high and indicates strong downward pressure on home prices. That really is what to watch in the existing home sales numbers, since the amount of economic activity generated by an existing home changing hands is not really that big a deal, but home prices are a very big deal. Unfortunately, it looks like they are falling again. * Initial Claims for Unemployment Insurance looked like they had broken out of the trading range they were in for most of 2010, and have done so to the downside (that’s good). There was a massive drop over the Christmas week, but the last two weeks have tempered that good news. Last week they rose to 445,000 -- an increase of 35,000. The Christmas week number was the first drop below the 400,000 level in this cycle, but it proved to be too good to be true. The consensus is looking for things to get back on track, with a fall to 425,000. We probably need to see them fall below 400,000 and stay there to signal the economy is adding enough jobs to finally bring down the unemployment rate. We are getting closer, but are not there yet. * Continuing claims have also in a downtrend of late, but the path has been erratic. Last week they fell by 248,000 to 3.879 million. That is down 983,000 from a year ago. Some of the longer-term decline due to people simply exhausting their regular state benefits which run out after 26 weeks, but even extended claims have started to decline (erratically) as well. Federally paid extended claims rose by 128,000 to 4.635 million, and down 649,000 from a year ago. Looking at just the regular continuing claims numbers is a serious mistake. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks. * The Philly Fed index, another regional “mini-ISM,” is expected to drop to a reading of 20.4 from 24.3 in December. That is still showing pretty healthy growth, but a bit slower than the rate in December. * The index of Leading Economic Indicators is expected to rise by 0.6%, on top of a 1.1% rise in November. Friday * Nothing of significance. Potential Positive or Negative Surprises Historically the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. Given the small number of firms reporting, we skip this section this week. Article Directory: http://www.articledashboard.com Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service. For more information, visit www.zacks.com. |
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