Earnings season officially kicked off this week after a relatively quiet earnings warning season. Despite the few warnings, the companies that did warn sold off. This was a bit discouraging given the belief that much of the bad news had already been priced in. Overall, the reports generally met or exceeded consensus estimates, but many guided lower. The market suffered heavy losses this week, especially Mon-Wed, as investors continued to be spooked by companies guiding down and the lack of interest in holding equities during earnings season. There were also a number of rumors swirling around regarding alleged accounting irregularities.
Among the more notable events, President Bush outlined his ideas on how to improve corporate responsibility. However, the market apparently felt it was not enough as selling quickly followed the news conference. Another concern was a WSJ report that Merck improperly booked revenue at its Medco unit that it did not collect. Analysts came down on semi equipment stocks as Needham slashed estimates and price targets and Merrill Lynch downgraded 13 names. Auto stocks were very weak on disappointing June sales and some downgrades. Ford (F 12.61 -0.57) set a new 52-wk low. Retailers had good news as Wal-Mart (WMT 52.85 -1.33) guided higher and chain store sales results for June were generally positive. However, the stocks reacted negatively.
Overall, the top performing sectors were wireless, gold, storage, advertising/media. However, home improvement retailers got slammed. Home Depot (HD 29.09 -2.31) lost 23% setting a new 4-year low. Lowe's (LOW 40.18 -3.02) lost 12% for the week. Also weak were autos, oil services, beverages, healthcare.
Looking ahead, earnings season kicks into full gear next week. Among the more notable names reporting: Monday: BAC, GMH, NTRS; Tuesday: CAT, SCH, GM, JNJ, MER, WHR, RFMD, VRTS; Wednesday: BK, BA, CTX, KO, C, F, EXTR, IBM, KFT; Thursday: ALL, BGEN, DCX, DAL, LLY, EMC, NOK, S, MO, UNP, BRCM, EBAY, MSFT, PMCS; Friday: MRK, PEP, UAL. Also, Apple (AAPL) will have its analyst day on Wednesday. On Friday, Semi Cap Equipment Book-to-Bill is due.
The economic calendar is fairly light next week. Industrial Production comes out Tuesday. Greenspan will provide his semi-annual monetary policy testimony before the Senate on Tuesday. Housing Starts on Wednesday will be important for the homebuilders as the camps are split over whether the housing boom will slow. On Friday, CPI will be closely watched.
