TAKING STOCK
Dow rebounds as investors look for solid earnings reports to soothe markets
WASHINGTON — After a harrowing week for financial markets, investors will look for solid corporate earnings reports and healthy economic news over the next few weeks to calm things down.
This week, sharply higher bond yields, fears of faster rate hikes, and the prospect of a long trade war between the United States and China prompted a two-day rout in the stock market. The Dow Jones Industrial Average plummeted 1,300 points on Wednesday and Thursday.
Even as the Dow regained almost 300 of those points Friday, some experts said investors’ concerns haven’t been resolved. But if fresh evidence emerges that the economy remains healthy and growing, and companies are still churning out robust profit gains, the market may eventually push aside those fears.
The third-quarter earnings season will intensify in the coming weeks and should show whether profit growth remains strong despite the market’s worries. Earnings are projected to grow nearly 20 percent from a year earlier, a healthy gain if slightly below the previous two quarters.
That could be a tough hurdle to clear: 74 companies in the Standard & Poor’s 500 index have already said their earnings will come in below analysts’ estimates. That’s more companies than normally issue such warnings.
Just as important as the numbers, investors will focus on what company executives say about the impact of the U.S.-China trade fight, higher interest rates, and other challenges facing the economy. Talk of threats to future profit growth could jar investors and offset any positive vibe from good numbers for the quarter just past.
The trade issue “is going to be a huge focus,” said David Joy, chief market strategist at Ameriprise.
That’s because it’s still not clear what the long-run impact of the tariffs will be. Will American multinationals, such as Caterpillar, Apple and GM, start to shift some of their production out of China? Will they start to raise prices on more products to offset the cost of the duties?
Those concerns are rising because economists increasingly expect the Trump administration’s fight with China to continue for the foreseeable future. Many investors and business executives have previously assumed that the administration’s tariffs were intended to win short-term concessions.
“We expect this to be quite protracted,” Joy said. “These are really big, strategic geopolitical issues that aren’t easily solved.”