The bottom line


Market rally could trip over companies’ earnings

NEW YORK (AP) — It’s the earnings, stupid.

Optimism that the fortunes of financial companies such as Citigroup were improving sparked a four-week rally beginning March 10 that drove the Standard & Poor’s 500 index up 25 percent.

But now investors will find out exactly how companies across all industries performed during the first three months of the year. Those quarterly results will determine whether the surge was the beginning of a bull market or just a blip.

After all, the market’s last promising rally was derailed not by jobs data or an emergency federal bailout but by forecasts from companies that make everything from computer chips to tin cans to movies.

The S&P 500 jumped 182 points, or 24 percent, to 934 between Nov. 20 and Jan. 6. The next day, technology bellwether Intel Corp., aluminum producer Alcoa Inc. and media giant Time Warner Inc. all issued grim earnings guidance. The S&P dropped 28 points, or 3 percent, that day and hasn’t returned to its early January levels since.

The current rally also began with a company announcement. This time, beleaguered and bailed out Citigroup Inc. said March 10 it was profitable for the first two months of the year. The S&P 500 gained 43 points, or 6 percent, that day to 719. The index closed Thursday at 857, and markets were closed on Good Friday.

The S&P could rise more, and even turn positive for 2009, if earnings reports for the first quarter show a strengthening economy. Alcoa, the first big company to report their results each quarter, announced a loss of $497 million Tuesday evening. But investors were pleased about the aluminum company’s efforts to cut expenses by $2 billion a year, and the shares are up 14 percent since.

Wells Fargo & Co, meanwhile, said it expects record first-quarter earnings of $3 billion, about 50 percent more than the same period a year ago. The shares surged $4.72, or 32 percent, to $19.61 that day.

“We’ve got this incredible possibility that the market has turned a corner — that’s it’s not just a bear market rally or a head-fake,” said Arthur Hogan, chief market analyst at Jefferies & Co.

The six companies that will report earnings this week, each, in its own way, providing a snapshot of the economy:

UGeneral Electric Co.

UIntel Corp.

UJohnson & Johnson

UCitigroup Inc.

USherwin-Williams Co.

UCSX Corp.

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