It's a big week for earnings reports that could eitherl justify or torpedo the recent market rally.
On Tuesday we have the likes of Johnson and Johnson and Intel, on Wednesday, JP Morgan, Thursday brings CIT, Goldman Sachs, AMD and IBM, among others and Friday brings General Electric and Bank of America.
The consensus is that investors are going to be looking for top line revenue growth to help profits along in addition to cost cutting to beef up bottom lines.
Friday's action reversed the correction we had seen the previous week as the market struggles to breach resistance at the 1070-1080 level on the S&P 500.
We went to inverse positions on October 1 from 1060 on the S&P and now are looking at momentum swinging back to the upside.
This week will be critical as earnings will tell the tale.
A solid break above 1080 on the S&P would solidify the advance and indicate higher prices ahead.
It's a confusing time with lots of cross currents as the struggle for future direction plays out.
The View from 35,000 Feet
The Financial Times reports that fair price on the S&P 500 is 867 based on book value, P/Es, etc and so we're about 20% ahead of their estimate.
Usually at the end of a recession, P/E ratios are 14-15X and this time around we're at 27X and so many economists are saying stocks have gotten well ahead of themselves on a valuation basis.
Nobel Prize winner, economist Joseph Stiglitz, says things are "going to get worse," and Timothy Long,the chief national bank examiner for the Comptroller of the Currency warned of credit problems ahead for banks due to ongoing job losses and problems in the commercial real estate sector. Estimates of banking losses for the 3rd Quarter range to as many as 60% of banks will report losses this quarter.
Car sales are expected to show a sharp decline for the month as the cash for clunkers program expired and manufacturing hours are forecast to have declined -0.5% signalling a decline in output from previous months.
The Week Ahead:
Wednesday: September Retail Sales, August Business Inventories, September FOMC Minutes
Thursday: Weekly Jobless Claims, October Philly Fed, September CPI
Friday: September Industrial Production, October University of Michigan Consumer Sentiment
Sector Spotlight:
Leaders: Silver, Homebuilders, China
Laggards: Short Oil and Gas, Bonds
This weekend, my young son and I continued his college search with a trip to Oregon State and the Navy ROTC unit there and then down to San Francisco to see University of California at Berkely and Fleet Week. We had the chance to talk to a couple of astronauts and see the airshow over San Francisco Bay which was dramatic, and it's exciting to watch him start to frame his future.
In August we visited the Navy Academy in Annapolis and it's wonderful to see these kinds of opportunities during these difficult times. Made me wish I was 17 again.
John
John Nyaradi
Publisher
All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.
Posted
10-12-2009 10:21 AM
by
John Nyaradi