By Carla Mozee, MarketWatch
LOS ANGELES (MarketWatch) -- Tech heavyweights Apple Inc.,
Google Inc., International Business Machines Corp. and Microsoft
Corp. are scheduled to release quarterly results next week, and
with gloomy expectations for earnings for the sector, investors
will be keen to hear the companies' forecasts.
The market will be "at the beginning of the heart of earnings
season," this week, according to Robert Pavlik, chief market
strategist at Banyan Partners, who noted that 3M Co. (MMM) and
Johnson & Johnson (JNJ) will be among other companies in focus
with the release of their results.
After the Martin Luther King Jr. holiday on Monday, the heavy
slate of results due Tuesday include numbers from Google (GOOG),
IBM (IBM) and Texas Instruments Inc. (TXN)
The marquee event next week will likely be Apple's report
Wednesday. "It's the most important stock in the stock market.
Everyone will be interested in what to see what their numbers are
and what their guidance will be," said Phil Orlando, equity-market
strategist at Federated Investors.
Apple holds significant influence on the U.S. market as its
shares have a 3.8% weight in the S&P 500 Index (SPX) and a 10%
weight in the Nasdaq Composite Index (RIXF). Their impact was felt
this week as the stock dropped about 4% ahead of the Silicon Valley
company's results.
An upside earnings surprise from Apple could boost its shares
and strengthen sentiment in the tech sector. Unlike the past nine
quarters, Apple isn't predicted to be the largest contributor to
sector earnings growth at the company level, according to FactSet.
If the company were to report a year-over-year fall in earnings, it
would be the first time since the second quarter of 2003, the
research and data provider said.
Analysts polled by FactSet currently expect Apple to post fiscal
first-quarter earnings of $13.45 a share, down from $13.87 a year
ago. Revenue, however, is expected to rise to $54.92 billion from
$46.33 billion in the year-earlier period.
The results will be first full quarter to include sales of the
iPhone 5, which was launched in September. Total shipments are
expected to come in at roughly 48 million, but Apple's stock has
been hit recently in part on worries about slower demand for the
device. Several analysts and media outlets have reported that Apple
has reduced orders for certain iPhone 5 components.
"We're about to report biggest iPhone sales ever, and people are
just thinking about what's next," Walter Piecyk of BTIG told
MarketWatch.
Investors will also be eager to hear what Microsoft (MSFT) will
say about sales of its latest product, the Windows 8 operating
system, which was unveiled in October.
The slow start for the Windows 8 cycle largely stems from "the
fact that this is not a simple upgrade; it requires some investment
in time to relearn the product, given the addition of the
tabletlike portion of the operating system's user interface to
optimize the experience for touch," wrote Nomura software analyst
Rick Sherlund in a note Friday.
Near-term catalysts for Microsoft's stock aren't apparent, said
Sherlund. However, "traction should improve over the year with
increased new hardware availability and lower prices, with a better
opportunity for the stock in the second half" of the year.
Microsoft shares are up 2% so far in 2013.
Earnings for the information-technology sector are expected to
drop 2.9% for the quarter. The industrials sector is projected to
fare the worst in terms of earnings, with an expected decline of
4.8%, according to FactSet.
The aggregate earnings-growth rate for the fourth quarter is
1.9%, limited by expectations for the technology, industrial and
health-care sectors.
But overall, U.S. corporate earnings "so far haven't really
failed to disappoint. They've come in pretty much in line, maybe a
little bit to the upside," said Federated's Orlando.
Of the 54 companies in the S&P 500 that have reported
earnings so far, FactSet said 65% have posted earnings above the
mean estimate, and 69% have turned in sales above the average.
Outside of tech, results this week are expected from Starbucks
Corp. (SBUX), Procter & Gamble Co. (PG), Union Pacific Corp.
(UNP) and McDonald's Corp. (MCD)
In a light week for economic data, investors will receive
reports on sales of new and existing homes in December, and Orlando
expects to see continued improvement in the sector. The
existing-home sales report is due Tuesday. The figures for new home
sales are scheduled for Friday.
If this week's data were to come in below expectations, the
market may take it in stride considering the time of year. "We're
now in the middle of winter; you would expect that the numbers are
going to be sloppy in winter," according to Orlando, who said that
the people prefer to buy homes later in the year. "If we did miss
on the numbers, I think the market would look past that."
But the government's report on weekly jobless claims, due
Thursday, could pressure stocks, said Banyan's Pavlik. The most
recent data were "influenced by adjustments that may get
straightened out this week, so you might see a little bit of an
increase in initial claims," he added. "The Street may react a
little bit negatively to that if they just read the top line, and
not the actual report."
Stocks will enter the holiday-shortened week at multiyear highs,
with Friday's gains aided by strong quarterly reports from General
Electric Co. (GE) and by moves in Washington to resolve the
debt-ceiling issue.
The S&P 500 finished Friday up to 1,485.98, its highest
close since December 2007. It ended the week with a gain of 1%. The
Dow Jones Industrial Average (DJI) picked up 1.2% and the Nasdaq
Composite Index (RIXF) rose 0.3% for the week.
Pavlik said he felt "encouraged" and "impressed" by the stock
market's performance lately. Many investors late last year had
taken profit and prepared to be out of the market, he said, because
they were nervous about the outcome of budget talks in
Washington.
With an aspect of the budget crisis settled at the start of
2013, equities have "held up and have moved higher," aided by
rotation out of Treasurys and other fixed-income asset classes.
But investors should still keep caution in mind, he cautioned,
as Capitol Hill is poised to vote for pushing in-depth discussions
about the raising the ceiling "down the road."
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