What to watch this week: Housing and Amazon, Yahoo earnings
A slew of earnings reports this week could shed light on whether the recent market rally is rooted in company fundamentals or just the growing expectation that the Federal Reserve will put off hiking interest rates until next year.
Meanwhile, the recovering housing market highlights a light week of economic news, and could perk up a U.S. outlook darkened last week by disappointing retail sales and another drop in industrial production.
Walmart's (WMT) stock plunged 10% last week on sharply lower guidance from the company, but that wasn't enough to keep stocks from drifting higher after Fed policymakers signaled a rate increase this year is increasingly unlikely.
Walmart's nemesis, Amazon (AMZN), should provide hope that digital companies are ready to help pick up the earnings slack. Analysts expect the online retail colossus to report a 21% jump in revenue compared with the year-ago period, and a per-share earnings loss of 13 cents, down from 95 cents, as the company continues to boost sales and fatten gross margins.
Yahoo (YHOO) is also expected to notch a 15% jump in revenue, but that has meant higher customer acquisition costs. Its per-share profit is expected to tumble to 17 cents from 52 cents a year ago.
Traditional corporate giants will report this week as well. Analysts are betting on Microsoft (MSFT) and IBM (IBM) to maintain reasonably healthy profits amid falling revenue, while American Airlines (AAL) is likely to see a big jump in earnings on plummeting fuel prices.
The economy also could deliver more encouraging news. On Monday, the National Association of Home Builders is expected to announce that builder sentiment remained near pre-recession levels this month. Mortgage applications have rebounded recently, notes Lewis Alexander, chief U.S. economist of Nomura. But RBC Capital Markets cautions that contractors' perceptions could be tempered by their ongoing struggles to find workers.
Despite the worker shortage, housing starts have generally risen since March. Solid job and income growth are prodding many Americans to buy houses for the first time or upgrade, while many Millennials are finally moving out of their parents' basements and into their own homes, Alexander says. The Commerce Department is expected to report on Tuesday that housing starts rose 1.4% to a seasonally adjusted annual pace of 1.14 million in September.
Existing home sales also have trended up this year, but limited supplies have restrained the gains. Economists expect the National Association of Realtors to announce Thursday that existing home sales edged up nearly 1% to 5.4 million at an annual pace in September, though that's down from 5.5 million over the summer.