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19 April 2024

Obama and corporate earning reports set to call stocks' tune

By Reuters

Wall Street will greet a new president next week with high hopes for a fresh start, but a deluge of corporate earnings reports pointing to a deepening recession could spoil the welcome party.

Stocks closed the curtain on the George W Bush era on Friday, capping an eight-year run that produced a 36.9 per cent drop in the benchmark S&P 500 and more than $4.6 trillion (Dh16.89trn) of lost stock market value.

With that dismal context, investors are eager to see what Barack Obama has up his sleeve to jolt the economy out of recession and restore confidence to battered financial markets.

Obama will be sworn in at midday on Tuesday as the 44th president of the United States and as the nation's first African-American head of state.

Markets will be closed tomorrow for the Martin Luther King, Jr Day holiday.

The big impediment in the holiday-shortened week is a full earnings calendar.

Earnings for the last three months of 2008 are forecast to have fallen more than 20 per cent from the year before, according to ThomsonReuters Research, marking a record six straight quarter of declining profits.

And if what investors have heard from companies so far this year is any guide, chances for a profit rebound are slim.

"The key is what the new administration does – do they get out of the box quickly?" said Tim Ghriskey, Chief Investment Officer of Solaris Asset Management in Bedford Hills, New York.

"A big thing they will deal with is how to stop the problems with the banks. I do not think anybody expects major announcements at the inauguration but in the days following, people want to hear some type of plan that things are going to be different."

The latest earnings reporting season got off to a rocky start this past week, when aluminum producer Alcoa Inc posted a wider-than-expected quarterly loss.

Any outlooks from companies suggesting that the year-long recession is getting worse will present a major hurdle for the stock market trying to sustain a recovery from its November 21 bear market low.

Concerns about mounting credit losses for banks and worries about the fate of Citigroup and Bank of America have contributed to a pullback in the market's advance from the November low.

The benchmark S&P 500 started 2009 up more than 20 per cent from that low, but ended Friday up only about 13 per cent.

Obama scored overcame his first legislative hurdle when an attempt to block the release of the remaining $350 billion in the government's financial rescue fund was rejected in the US Senate on Thursday.

Earnings set to pour in next week include reports from Dow components International Business Machines Corp, Johnson & Johnson, United Technologies, Microsoft and General Electric. Other technology bellwethers reporting results are Google and Apple Inc, which on Wednesday said Chief Executive Steve Jobs would take a medical leave of absence through June.