Weekly Market & Eco-Data Preview

Week ahead: Bernanke and the buck The next week's economic reports may do little to jump-start stock buyers, or sellers. The Federal Reserve, which releases its interest-rate statement Wednesday, is expected to keep rates near zero percent and make little changes to how it characterizes the outlook for monetary policy. Fed Chairman Ben Bernanke and other policymakers have held to their mantra of holding rates for an "extended period" as they wait for more solid signs the economy is expanding fast enough to sustain job growth. Bernanke knocked back expectations the Fed could raise rates next year when he spoke Monday about the "headwinds" facing the economy. These expectations had jumped after the U.S. government said companies cut only 11,000 jobs in November. The Fed left us no doubt that they have little interest in tightening monetary policy in the near term. On the economic calendar, the U.S. government is expected to report a rebound in industrial production in November, helped by better auto manufacturing. Plus, economists are forecasting a jump in housing starts in November as construction crews returned to work after wet weather halted activity the prior month. Weekly jobless claims are expected to decline. And higher energy prices should propel wholesale and consumer inflation higher. See economic forecasts for next week. On Friday, economists at J.P. Morgan, Bank of America-Merrill Lynch and others raised their outlooks for fourth-quarter U.S. economic growth, citing better inventories, trade and retail data over the past week. Earnings front Overall, nine companies in the S&P 500 are scheduled to report results. Of particular import will be outlooks on Oracle, RIM and Palm. Investors are looking for signs companies are doing more than making profits by slashing expenses. They want to see sales growth, a sign consumer and business demand is picking up. "For stocks, 2009 was an earnings-based story and a lot of that was cost-cutting," said Stephen Wood, chief market strategist for Russell Investments. "For 2010, the hard work will be in identifying the companies that will transition to a revenue story," he said. For the fourth quarter, analysts surveyed by Thomson Reuters anticipate operating earnings for the S&P 500 will surge 210% as financials, consumer discretionary and energy stocks rebound from tough quarters a year-ago, when the credit crisis was in full swing. Legislative push Healthcare and financial stocks could also see some upheaval as Congress tries to push through some landmark bills before the Christmas break. The Senate is waiting for a Congressional Budget Office analysis of a compromise reached in the past week among senior Democrats over the 10-year bill's government-run health plan. The analysis is expected in the upcoming week. And next week, the Senate may debate its own version of a financial regulation bill after House lawmakers approved the most significant increase in the regulation of U.S. banks and other corporations since the Great Depression. TANKAN TANGO; The Bank of Japan's closely watched quarterly tankan survey could drag on Tokyo-listed stocks early next week, as analysts expect earlier strength in the yen to weigh on the results. The tankan results due early Monday will likely show that the diffusion index for large manufacturers -- the survey's headline number -- rose to a reading of negative 26 in the October-to-December quarter from a negative 33 in the previous quarter, according to economists at Barclays Capital. The diffusion index measures the percentage of firms saying business conditions are good against those saying conditions are bad, with a negative reading indicating more pessimists than optimists. Sentiment among non-manufacturers is expected to improve to negative 20 from negative 24 in the previous quarter, according to research note from economists at Barclays Capital issued last week. Economists at HSBC forecast a rise of 8 points in the business outlook indicator for large manufacturers to a negative 25 for the December survey, with the measure for large non-manufacturers likely up by 3 points to negative 21. In a research note, the HSBC economists said the tankan's "all-industry" capital expenditure forecast reading is likely to show expectations for a fall of 18% for the fiscal year 2009, compared with the expected drop of 17.3% reported in September. "The diffusion indices for the auto, electric machinery and retail industries should show some further improvement, although profit forecasts may be generally reduced to reflect assumptions of a stronger yen," they said. T. W. Merryman Managing Director Interconti, Limited (Market Research Analysts) Chicago, IL 60604 e: intercon@intercontilimited.com w: www.intercontilimited.com