8:16 PM
NEW YORK |
NEW YORK (Reuters) - Earnings could make for a bumpy ride in U.S. stocks next week if more key companies undershoot expectations, possibly causing a spike in volatility.
Disappointments from Alcoa (AA.N) , Google (GOOG.O) and others in the first week of earnings have dampened some of the enthusiasm about results, ensuring that eyes will be glued to reports in the coming days.
These include top technology and financial company results, including Yahoo (YHOO.O), Intel (INTC.O), IBM (IBM.N), Texas Instruments (TXN.N), Goldman Sachs (GS.N) and Citigroup (C.N). This blitz of numbers will come during a holiday-shortened week. U.S. financial markets will be closed on April 22nd in observance of Good Friday.
Market watchers also will be anxious to hear how much tech companies may have been affected by the disaster in Japan.
"We've all been lulled to sleep here lately. This earnings season will hopefully be a telling point to try to give people conviction to go one way or the other," said Mike Gibbs, managing director and chief market strategist at Morgan Keegan in Memphis.
"There are potential land mines out there that could create a little bit more volatile trading," he said.
The CBOE Volatility Index, a barometer of investor anxiety known as the VIX .VIX, briefly fell on Friday to its lowest level since July 2007. It ended at 15.32, well below its mid-March high of 31.28.
Others agreed that further disappointments could stir up volatility.
"If earnings disappoint greatly from any of the major players next week in the financials or technical sector, this could be a catalyst for a return of volatility into the market," said Joe Kinahan, TD Ameritrade chief derivatives strategist, in Chicago.
For the week, the Dow Jones industrial average .DJI slipped 0.3 percent, while the Standard & Poor's 500 Index .SPX and the Nasdaq Composite Index .IXIC each shed 0.6 percent.
BEWARE OF "DUAL HEADWINDS"
Whether the earnings season will be strong enough to propel the market higher is the question on investors' minds.
The Standard & Poor's 500 index .SPX is up 25.8 percent since the start of September, roughly when the recent rally began.
But sharp gains in the price of oil and other commodities, especially in the first quarter, have fueled worries about the impact on consumers and companies. Moreover, Japan's massive earthquake and tsunami, which triggered a nuclear crisis, have prompted other concerns.
Equity strategists at JPMorgan Chase cut their U.S. earnings estimates by $1 -- but for second-quarter and full-year results -- because of these "dual headwinds."
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