By Kate Gibson
After the worst January on record, the new month is off to an
uncertain start with investors braced for more disappointing
earnings results, layoffs and dismal economic data.
"There was a lot going on last week, earnings, company
projections layoff announcements, housing numbers, economic
numbers, and bailout announcements, and not a glimmer of hope among
them. This week, we anticipate more of the same," said Marc Pado,
U.S. market strategist at Cantor Fitzgerald.
"With 40% of the S&P reported, and earnings looking down 35%
versus the fourth quarter last year, expectations are low," said
Pado.
On Monday, equities closed mostly lower, with energy,
industrials and materials down the most and technology shares
helping the market pare losses.
The Dow Jones Industrial Average (DJI) finished down 64.11
points, or 0.8%, to 7,936.75. The S&P 500 (SPX) gained half of
a point to stand at 825.43, and the Nasdaq Composite (RIXF) added
18.01 points, or 1.2%, to 1,494.43.
"Tech is showing some small signs of positive relative
performance to the S&P. I may be grasping at straws, but that
would be a positive divergence," Pado said.
Added to the underlying anxiety is the slew of economic data due
this week, culminating in Friday's jobs report. Economists on
average anticipate a loss of 550,000 jobs and an unemployment rate
of 7.4%.
"That is one ugly report holding out until Friday," Pado
said.
Adding to the job losses, Macy's Inc. on Monday said it would
cut about 7,000 jobs, roughly 4% of its workforce, and slash its
dividend by more than half. .
Results
On the earnings front, Mattel Inc. (MAT) on Monday reported a
46% fourth-quarter profit decline from last year, with the results
from the world's biggest toy maker much worse than expected. .
Manufacturer Rockwell Automation Inc. (ROK) lowered its yearly
forecast while reporting a 25% slide in fiscal first-quarter
profit. .
Chip-tools maker Applied Materials Inc. (AMAT) lowered its
earnings forecast ahead of reporting its first-quarter results next
Tuesday. .
And, after Monday's close, flash-memory chip maker SanDisk Corp.
(SNDK) is expected to report a quarterly loss, while insurer Aflac
Inc. (AFL) is expected to report a 20% rise in earnings in the
fourth quarter. .
Tuesday brings results from a broad mix of companies, including
Archer Daniels Midland Co. (ADM), Dow Chemical Co. (DOW), Merck
& Co. Inc. (MRK), Walt Disney Co. (DIS) and Motorola Inc.
(MOT).
In addition, major automakers on Tuesday report on January
sales, with another batch of double-digit declines likely in store.
.
Last month, the Dow lost 775.53 points, or 8.8%, marking the
blue-chip index's worst January performance in both point and
percentage terms in its 113-year history. The second worst January
came in 1916 when the Dow fell 8.64%, and then went on to a
full-year decline of 4.91%.
The first month of the year has accurately predicted the year's
direction 75% of the time in the history's index, matching 84 out
of 112 full years. The accuracy has increased in more recent
decades, matching 26 years, or 87% of the time, for the last 30
years, according to Dow Jones Indexes.
The final week of January featured the release of the
preliminary fourth-quarter gross domestic product, which had the
U.S. economy contracting at an annualized rate of 3.8%, the biggest
drop since 1982.
"Not only were consumer spending and business investment levels
down, but the report also showed an unwanted build-up in inventory
levels that will need to be worked off, suggesting that the current
quarter also will be quite weak," said Bob Doll, chief investment
officer of equities at BlackRock.
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