Wall St Week Ahead: Investors turn wary as earnings picture dims

NEW YORK, Oct 12 (Reuters) - Earnings season is heating up,

but investors' feet are getting cold.

Central bank-fueled gains took markets within reach of

five-year highs in September, but now U.S. stock market

participants are shifting their focus back to corporate

outlooks, and the picture is not pretty.

Early earnings reports have underlined those concerns, which

may be exacerbated when dozens of major companies - including

Dow components General Electric, Microsoft Corp

and International Business Machines Corp - report next

week.

"Caution is definitely the operative word as Europe and

China look to continue dragging on earnings," said Michael

Loewengart, director of investment strategy at E-Trade Financial

in New York. "The overall tone is so pessimistic that we may see

some upside surprises, but we could still suffer considerable

losses if the news is bad."

Profits of S&P 500 companies are seen dropping 3

percent this quarter from a year ago, the first decline in three

years, hurt by China's slowing growth and Europe's debt crisis,

which recently prompted the International Monetary Fund to cut

its 2012 economic growth outlook.

Financial stocks will be especially in focus, with Bank of

America Corp, Citigroup Inc, Goldman Sachs Group

Inc and Morgan Stanley all set to report.

Results on Friday from JPMorgan Chase & Co and Wells

Fargo & Co generated some caution about the group

despite both reporting stronger-than-expected profits. Wells

Fargo posted disappointing revenue and a bigger drop in net

interest margin than had been anticipated.

Wells Fargo shares slumped 2.6 percent to $34.25 while

JPMorgan lost 1.1 percent to $41.62 despite bullish commentary

about the housing market.

"We need to see big banks doing well, and JPMorgan or Wells

didn't give us the boost we were hoping for," said Wayne

Kaufman, chief market analyst at John Thomas Financial in New

York. "Citigroup is the one we're looking for. If profits come

in worse than expected there, that would make me more bearish

about the economy in general."

FEWER COMPANIES BEAT THE STREET

With only 6 percent of S&P 500 companies having reported, 59

percent of companies have topped profit expectations - less than

the average beat rate of 67 percent for the past four quarters,

according to Thomson Reuters data. Half of companies have beaten

on revenue, while a quarter missed profit forecasts.

"We need to see the beat rate pick up well into the 60s if

we want the market to have any support," Kaufman said.

The S&P 500 fell 2.2 percent this week, its biggest

weekly percentage drop since June, on caution about the season

after a number of bellwethers cautioned on their outlooks,

including Chevron Corp and Alcoa Inc.

Profits are being dragged down by material and

energy stocks. Material sector earnings are seen

dropping 24 percent, and energy sector results are expected to

slide 19 percent.

In contrast, aggregate profit growth for financials

is seen up 1.6 percent.

Trading could be especially volatile in the Nasdaq, with a

number of tech titans on tap, including Microsoft, Google Inc

, IBM and Intel Corp, which recently cut its

outlook.

"Tech results can be a good proxy for business spending,

which will give us a sense of how companies are viewing the

future," said John Carey, portfolio manager at Pioneer

Investment Management in Boston.

Carey, who helps oversee about $200 billion in assets, said

outlooks were still too optimistic, "so I've pulled in my horns

a bit, and have become more defensive."

BLUE CHIPS, GREECE AND DATA

McDonald's Corp, UnitedHealth Group and

Johnson & Johnson are also scheduled to report earnings,

along with General Electric, which E-Trade's Loewengart said

would be particularly watched, given the company's diversified

operations.

Trading will also be influenced by the news flow in Europe,

where a summit of finance ministers will take place. The Wall

Street Journal reported that a deal on austerity measures for

Greece could be reached in time for the meeting.

In the realm of U.S. economic data, investors will look

ahead to reads on retail sales, the Consumer Price Index and

existing home sales. September retail sales are seen rising 0.8

percent, while the overall CPI for September is expected to gain

0.5 percent, and September existing home sales are forecast to

fall 2 percent, according to economists polled by Reuters.

(Wall St Week Ahead runs every Friday. Questions or comments

on this column can be emailed to:

ryan.vlastelica(at)thomsonreuters.com )

Source: http://news.yahoo.com/wall-st-week-ahead-investors-turn-wary-earnings-205738931--sector.html

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