U.S. stocks to get no rest, remain volatile
Week capped by Bernanke’s Jackson Hole speech on Friday
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By Wallace Witkowski, MarketWatch
German Chancellor Angela Merkel and French President Nicolas Sarkozy proposed penalizing euro-zone nations with big deficits, and said they supported a euro-zone tax on financial transactions. Also, factory activity in the Philadelphia area dove sharply to the lowest level in two years.
Morgan Stanley MS -1.23% cut its global growth outlook for 2011 and 2012 saying the United States and Europe were “dangerously” close to recession, and that a “negative feedback loop between weak growth and soggy asset markets now appears to be in the making.” Also, fears of a slump in corporate information-technology spending spread as NetApp Inc. NTAP +0.40% warned of a weak outlook. Read more on NetApp, outlook for IT hardware.
Cheap stocks, program trades
Next week’s economic data may do little to sway sentiment, according to Craig Hodges, president of Hodges Capital in Dallas.
Hodges said he sees a real disconnect between what businesses are telling him and the economy. Even though most companies met or exceeded earnings expectation this past quarter, cheap stocks are continuing to get cheaper as investor pessimism increases.
“Right now, computerized trading is in control of the market,” he commented. “I don’t think fundamentals are in play.”
Of the 485 companies in the S&P 500 that have reported quarterly results this earnings season, 71% have reported earnings above analyst expectations, according to Thomson Reuters. Third-quarter numbers, however, do not look as promising with 69 negative earnings outlooks from S&P 500 companies, compared with 29 positive earnings outlooks.
Companies on deck to report earnings in the coming week include Medtronic Inc. MDT +0.13% , H.J. Heinz Co. HNZ -0.42% , Williams-Sonoma Inc. WSM +0.24% , Hormel Foods Corp. HRL -1.21% and Tiffany & Co. TIF -3.12%
Tim Hoyle, director of research at Haverford Investments in Radnor, Pa., said the market already has priced in a 60% chance of a double-dip recession because of a slowdown in economic growth.
“This really is a growth problem,” he remarked. “The general theme is slow growth means that the debt issue looms large. That’s why markets are scared.”
Hoyle added that volatility is here to stay and cautioned investors to buy into the market for the long term, preferably into high dividend-yielding companies that can weather the economic storm. Read more on foreign-stock dividends for your portfolio.
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