US stocks: Investors eye earnings, Iraq and OPEC

NEW YORK - Stock investors may want to fasten their seatbelts this week, when a flurry of earnings and economic data will once again be in focus.

Concerns over the Iraq elections and the outcome of the next meeting of the Organization of Petroleum Exporting Countries, (OPEC) both scheduled for Jan. 30, also could affect investor sentiment during the week.

On the earnings front, there's little evidence to build a case for optimism.

Of the first 117 companies in the Standard & Poor's 500 to report earnings, more have missed expectations on earnings and revenue than at the same time last year, according to Reuters Estimates.

And in the stock market, investors voted their dismay by being quick to sell after getting the earnings news.

For the year to date, the blue-chip Dow Jones industrial average is down 3.62 per cent, the broader S&P 500 is off 3.63 per cent, and the tech-heavy Nasdaq is down 6.49 per cent.

"I think (this) week is going to be very volatile," said David Scott, portfolio manager at the Chase Growth Fund, which has assets of more than US$200 million, mostly in large-cap companies.

"Some companies will come through with nice earnings and guide positively -- others will not. It's a tough week to read."

The earnings season gets into top gear with dozens of the biggest US companies scheduled to report.

Those will include Johnson & Johnson, Merck & Co Inc. and Merrill Lynch & Co. Inc. on Tuesday, Starbucks Corp on Wednesday, Microsoft Corp. and Caterpillar Inc. on Thursday, and McDonald's Corp. on Friday.

On the week's calendar of economic data, the consumer confidence index for January from the Conference Board on Tuesday, durable goods data for December on Thursday, and fourth-quarter gross domestic product numbers on Friday will be closely watched.

Anthony Chan, managing director and senior economist at JPMorgan Fleming Asset Management, believes that corporate earnings will end the season slightly improved.

Chan cautioned, however, that "the climate in Iraq and the climate with OPEC will determine how we view those earnings -- those factors will influence the equity market's sentiment."

Any escalation in violence leading up to the scheduled Iraq elections on January 30 could have an impact on US financial markets, analysts said.

"In the shorter term, you are going to have volatility in the energy markets and the currency markets due to the Iraqi elections -- you can see that concern building up," said Frank Holmes, chief investment officer at US Global Investors, Inc., which manages about US$1.7 billion of assets.

OPEC, the oil producers' cartel that controls about 40 per cent of global exports, meets on Jan. 30 to discuss whether it needs to cut supplies even more ahead of the second quarter, when winter demand slows.

Investors worry about the possibility of higher energy prices because they can squeeze corporate profits and curb the consumer spending that drives the US economy.

Also on investors' minds is the next meeting of the US Federal Reserve's policy-setting body, the Federal Open Market Committee, on February 1-2.

The FOMC has raised short-term US interest rates five times in succession since last June. But its trend-setting federal funds rate still is considered to be relatively low at only 2.25 per cent.

Analysts expect rates to keep rising, but at a "measured" pace that is generally considered to be in increments of a quarter percentage point, or 25 basis points, at a time, instead of larger moves.

- REUTERS