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NEW YORK: Earnings season may be only half over, but the focus on profits should subside next week as investors turn their attention to the coming election and Friday’s jobs report, the last major data release before the November 6 contest.
More bellwether companies are scheduled to report results in what will be another “peak week” of the earnings season. Such a flurry of numbers normally holds Wall Street’s attention and can lead to market swings. But volume and volatility may be slight next week, with market participants opting to remain on the sidelines ahead of the jobs data and the election.
The US government’s October jobs report will give a snapshot of the current labour market. It could also give a bit of a lift to President Barack Obama, should it come out better than anticipated, or help Republican candidate Mitt Romney - if it is worse than forecast. Polls currently indicate that President Obama is a slight favourite to win on November 6, but the race will be tight. The most recent Reuters/Ipsos poll of likely voters shows the president ahead - 47 percent to 46 percent.
The Standard & Poor’s 500 Index fell 1.5 percent this week, largely because of a spate of earnings disappointments. The Dow Jones Industrial Average slid 1.8 percent this week, and the Nasdaq composite index dropped 0.6 percent.
What’s notable, however, is that rebounds have been brief and quick to attract sellers. Some investors cited the approaching election as a barrier to committing new capital to the market. “Not many people have the stomach to plop down their bets when polling is so close,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management.
Expectations for the next nonfarm payrolls report, set for release on Friday, are by no means certain, either. Analysts expect 124,000 jobs were added in October - up 10,000 from September. However, the unemployment rate is also seen ticking higher - to 7.9 percent from 7.8 percent.
A payroll surprise in either direction could further cloud expectations for the election’s outcome
While the market at large may be waiting on news events, individual stocks could still be volatile as earnings season grinds along. More than half of the S&P 500 components have reported results so far. Next week, though, will bring reports from some marquee names such as Dow components Chevron and Pfizer, as well as S&P 500 stalwarts Visa, Ford Motor and Starbucks
This earnings season, a number of high-profile companies have missed estimates, including this week’s sour notes from Apple Inc, United Technologies and DuPont.
With 54 percent of the S&P 500 companies having reported results so far, 62.5 percent have topped earnings expectations, under the 67 percent average over the past four quarters. Just 37 percent have topped revenue forecasts, well under the 55 percent over the past four quarters.
The earnings disappointments led to some intensive selling, driving the Dow industrials down 243.36 points on Tuesday alone. The S&P 500 has ended down in five of the past seven trading sessions.