The Week Ahead: Financial Earnings Following Lehman's Warning

We passed the test. The market had an important check up this past week, and passed thanks to a rally on Friday. Historically, the midpoint of stock market trough to rally peak has proven an important point for price support. That midpoint this time around was 1,350 on the S&P 500 Index.

While we drifted below 1,350 on Wednesday, the market came up for air on Thursday and broke clean free of the water line on Friday, closing exactly where it started the week, at 1,360. It was an important exam, and we view it also significant that the close of the week offered hope. It seems to signal institutional conviction in the stability of that threshold. That said, news flow could prove the technicals worthless next week just the same.  

On the week, crude futures for July delivery traded extremely choppy, and couldn’t seem to make up their mind on which direction to go. Trading in a seven-dollar span, oil ended the week only about a dollar off where it started, at $136.66. The dollar, however, was more decisive on the week, strengthening to about $1.54 per euro.

The Week Ahead

As if the stock market was not frightening enough these days, this past Friday the 13^th will be followed up by a Quadruple Witching this Friday. The week ahead looks like a quiet one on paper, but you never know what surprises lay in hiding. The biggest story of the week looks to be the earnings reports of key financial institutions that follow this past week’s warning from Lehman Brothers (NYSE: LEH).   

The economic schedule includes fresh regional manufacturing data from the Empire State Manufacturing Survey on Monday. The New York area report is expected to show contraction. Bloomberg’s consensus expects a reading of –0.5, versus –3.2 in May. The similar Philadelphia area measure is due for Thursday reporting, and expectations there are for an also poor measure of –10.0.

Treasury International Capital is also set for Monday morning, measuring the degree of foreign investment in long-term U.S. securities during April. Capital flow has been increasing throughout the year, topping at $80.4 billion in March. The dollar and bond market are more likely to react to this data than stocks are though.

The Housing Market Index closes out Monday’s news, but it could top May’s weak showing of 19. Then Housing Starts are set for Tuesday, with expectations for a pace of 985K in May (1.032 mln. in April). The Producer Price Index [PPI] follows up last week’s CPI Report, and the consensus is looking for a 1.0% headline measure rise for May, and 0.2% increase less food and energy. The State Street Investor Confidence Index is set for Tuesday release as well, and will have a tough time comparing against May’s improved measure of 81.0.  

With no economic reports set for Friday, look for Weekly Initial Jobless Claims to reach 375K this week, according to economists, compared to 384K last time around. Also due on Thursday, Leading Economic Indicators are seen unchanged in May.  

The week’s earnings schedule includes: Monday – Adobe Systems (Nasdaq: ADBE), La-Z-Boy Inc. (NYSE: LZB); Tuesday – Best Buy (NYSE: BBY), Goldman Sachs (NYSE: GS); Wednesday – FedEx (NYSE: FDX), Morgan Stanley (NYSE: MS); Thursday – Carnival Corp. (NYSE: CCL), Gerber Scientific (NYSE: GRB); Friday – Winnebago (NYSE: WGO).