The Week Ahead: Earnings Massacre

Down 41% and counting! From the high on October 9, 2007 through this past Friday, that’s how much the Dow Jones Industrials Index is down. I’m quite sure you didn’t need me to point that out to you though, as your 401K and brokerage statements probably get the message across well enough.  

Last week, we gave back the 4.7% gain from two weeks ago, as the Dow slipped 5.3%. The driver of this most recent pain was somewhat clear. Earnings season is now firing on all cylinders, and the damage of economic decline is being seen far and wide across America’s corporations. Last week’s EPS reports read more like an obituary list.

On Monday, chatter grew louder around the pending demise of Circuit City (NYSE: CC), as it seems unlikely its assets will be acquired before bankruptcy. At least 150 stores hang in the balance. On Tuesday, National City (NYSE: NCC) announced it would lay off 4K employees, and by Friday it was acquired on the cheap by PNC Bank (NYSE: PNC). Cyclical chemicals producer DuPont (NYSE: DD) reported profits sank 30%, and cut its outlook. On Wednesday, Boeing (NYSE: BA) noted that it took a big strike-related hit in its quarter, while Merck (NYSE: MRK) saw its net profits drop, as it let go of 7,200 workers.  

Wachovia (NYSE: WB) (NYSE: WFC), perhaps more open than most banks now that its acquisition is sealed, declared a $24 billion loss. Travelers Insurance (NYSE: TFC) profits fell 82% on storm related losses. On Thursday, Goldman Sachs (NYSE: GS) announced it would lay off 10% of its employees, while Chrysler indicated it would reduce its salaried workforce by 25% (5,000 jobs). Meanwhile, Sony (NYSE: SNE) slashed its forecast and Toyota (NYSE: TM) reported quarterly auto sales fell for the first time in seven years, sending the NIKKEI down 9.6% on Friday. Finally, to close out the week, Aflac (NYSE: AFL) noted an Iceland related hit and a tough quarter. The scene was pitiful, as even the companies that posted solid results, still warned on their outlooks.  

Earnings season report flow will still be heavy this week, and the gist of the news should reflect as poorly on the economy as last week’s data did. The economic schedule was light last week, which at least offered a respite from that angle. We even had a surprisingly strong existing home sales report for the month of September.  

This week, however, will be much different. A couple economic events might offer both reason for retreat and inspiration for rise. The Federal Open Market Committee will announce its monetary policy decision on Wednesday afternoon, and economists are talking about another 50 basis point rate cut. At this point, the market is seeking any help it can get, and anything less than 50 points would just give it more reason to give up all hope. If a letdown doesn’t materialize, then Thursday’s first reporting of third quarter GDP might do the trick. For the first time through this mess, economists see a quarterly decline of 0.5%. Remember, it takes two of those to call it a recession, but that seems in the bag. 

On the earnings schedule, look for news from: Monday – Verizon (NYSE: VZ); Tuesday – Honda Motor (NYSE: HMC), SAP AG (NYSE: SAP), McGraw-Hill (NYSE: MHP); Wednesday – Aetna (NYSE: AET), AGCO (NYSE: AG), Legg Mason (NYSE: LM), TheStreet.com (Nasdaq: TSCM); Thursday – Deutsche Bank (NYSE: DB), Diebold (NYSE: DBD), Genco Shipping (NYSE: GNK), Monster Worldwide (Nasdaq: MNST); Friday – Clorox (NYSE: CLX) and Danaos (NYSE: DAC).

Disclosure: none