TAK­ING STOCK

Dow re­bounds as in­vestors look for solid earn­ings re­ports to soothe mar­kets

Chicago Sun-Times - - BUSINESS - BY CHRISTO­PHER RUGABER AND MAR­LEY JAY

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.”

RICHARD DREW/AP

A trader watches his screens Wednesday on the floor of the New York Stock Ex­change.

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