Bank of America Corp. (BAC), which reports today (Monday), remains among the last financials of note that has yet to announce its first-quarter performance, and the big bank figures to get a lot of attention as investors look to see how well Merrill Lynch & Co. Inc. (formerly known as “The Bull”) and Countrywide Financial Corp. have fit into the BofA family fold.

International Business Machines Corp. (IBM) (today) and Apple Inc. (AAPL) (Wednesday) will give investors a better idea of just how well the tech sector – which up to now has been quite hot – is really doing. Amazon.com Inc. (AMZN) (Thursday) will give investors an inside look at the health of the retail sector – especially the online variety.

Coca-Cola Inc. (KO), which reports tomorrow (Tuesday) and McDonalds Corp. (MCD) (Wednesday) should help us see whether consumers are so gassed that they can  even afford dollar sodas and burgers (or are buying more in lieu of dining at more-expensive restaurants).

Several economic reports will be worth a look, too. Home sales data for March highlight the economic calendar and analysts are eager to see whether February’s enhanced activity was the start of a trend or just an anomaly.  Interest rates are down; home prices are low, first-time buyers have tax incentives to buy.  Could the February and March numbers represent the start (continuation) of a housing rebound?  It’s going to happen at some point, and don’t forget that housing expert Andrew Waite, the publisher of the Personal Real Estate Investor magazine, recently told Money Morning that the recovery is already under way.

Market Matters

Strike up the band; let the good times roll; banks are making money again (or not losing quite as much). Earnings season moved along and financials led the charge with (somewhat) favorable reports.  Both Goldman Sachs Group Inc. (GS) and JP Morgan-Chase & Co. Inc. (JPM) announced better-than-expected quarters and key execs insisted they will pay back those TARP (Troubled Asset Relief Plan) dollars sooner than later.  While Goldman appears set to raise funds through a new stock offering (which will dilute current shareholders), JP Morgan insisted no similar issuance will be necessary.  With its $1.5 billion profit, Citigroup Inc. (C) looked quite promising relative to its $5 billion shortfall a year ago.  Still, some analysts claim the recent results reek of income-statement “shINTCenanigans” (and unsustainable bond trading gains), which is why they say that they will await the results of the independent stress tests in a few weeks, figuring that these  results will paint a more accurate picture of these banks’ operations.

Turning to techs, Intel Corp. (INTC) and Google Inc. (GOOG) reported stronger-than-anticipated quarters, but with caveats.  Despite claiming that the ailing computer industry may be “bottoming,” Intel refused to offer an outlook for the current quarter.  Google, on the other hand, enjoyed net-income growth, although the company experienced a decline in revenue (from the fourth-quarter 2008) for the first time in it five-year history as a public company.  While cell phone giant Nokia Inc. (ADR: NOK) suffered a drop in earnings, management reported optimistic signs of greater stability in the industry.  Conglomerate General Electric Co. (GE) posted a 35% decline in earnings, but still beat the Street outlook.  Airlines did not fare quite as well as both American Airlines parent AMR Corp. (AMR) and Southwest Airlines Co. (LUV) posted troubling losses, and warned of more turbulence to come.

In non-earnings news, The Procter & Gamble Co. (PG) bucked the recent cost-cutting trend and announced a dividend increase.  Mall owner General Growth Properties Inc. (GGP) filed for the biggest bankruptcy-protection case in the history of the real estate industry as the Chicago-based company attempts to restructure its debt positions, a move that underscores the concerns Money Morning recently raised as part of an investigation into the looming problems in the commercial real estate sector.

International Business Machines Corp. (IBM) moved beyond new Sun Microsystems Inc. (JAVA) overtures, claiming a reluctance to be drawn into a long antitrust battle.  Despite that failed deal, the boardrooms appear a bit more active these days as transactions highlighted the business news of the week.

American International Group Inc. (AIG) is selling its personal auto insurance line to Zurich Financial Services (OTC ADR: ZFSVY) for slightly less than $2 billion, the first of many such moves for the bailed-out insurer.

Express-Scripts Inc. (ESRX) will acquire WellPoint Inc. (WLP) for $4.68 billion to better compete with industry leader Medco Health Solutions Inc. (MHS) in the pharmaceutical-benefits-management space.

Rosetta Stone Inc., a language-education specialist, underwent an initial public stock offering (IPO) that reminded some of the “Go-Go” dot-com days as its stock soared about 40% on the first day of trading, the most successful offering in a year.

After five straight weeks of positive stock returns, U.S. stock experienced an early-week pullback, before charging ahead on the financials’ earnings reports.  “Six weeks and counting” have investors surmising that the rise may actually be more than a short-lived bear market rally (though the Nasdaq Composite Index remains the only key index in positive territory for the year).

Economically Speaking

Perhaps taking advice from spin-doctors, both U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke last week put a more optimistic (though realistic) face on the current state of the economy.

Said Bernanke: “Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence.”

Said President Obama: “By no means are we out of the woods just yet, but from where we stand, for the very first time, we are beginning to see glimmers of hope.”

Additionally, the Fed Beige Book reported an ongoing contraction throughout the country, but implied that certain regions “saw signs that activity in some sectors was stabilizing at a low level”

President Obama also welcomed Cuba back into the global economy (to a limited degree) by lifting trade restrictions (telecommunications-related) and allowing increased travel and additional financial payments from Cuban-Americans to family members.

A hectic week on the economic calendar brought some mixed – and confusing – results, as usual. After a few stronger months of consumer activity, retailers struggled again in March as sales took a surprising tumble across most categories. Industrial production fell for the fifth straight month, revealing that manufacturers have a long way to go before declaring recovery.

On the other hand, while housing starts declined in March, the losses were attributed to apartment construction, and single-family residential activity was reported flat (similar to February); some optimistic analysts – like magazine publisher Waite – predicted the worst had ended for the housing sector.

Both the retail and wholesale inflation gauges dropped in March with the consumer price index (CPI) experiencing its first consecutive 12-month decline in prices since mid-1955.  While some pessimists in the bunch were quick to play the deflation card again, most seemed content to proclaim that price pressures are simply one aspect of the economy that warrants little to no worry in the present environment.

Weekly Economic Calendar

Source: Earnings Reports Will Play a Key Role This Week

• General Motors Corp. (GM) may drop its Pontiac and GMC brands, as it tries to cut costs before its June 1 deadline to prove profitable or enter bankruptcy protection, sources told Bloomberg. The brands of Chevrolet, Cadillac and Buick are likely safe, the sources said.

• Shares of Rosetta Stone Inc. rose 42% on their first day of trading, as the language-training company’s initial public offering netted $112.5 million, Reuters reported. Rosetta Chief Executive Tom Adams told Reuters it was hard to pick the right share price. “We are a long-term oriented group and we deliberated,” he said.

• Turkey’s central bank lowered its benchmark interest rate by 75 basis points to a record 9.75%, Bloomberg reported. In the past six months, the central bank has chopped seven percentage points from the benchmark rate.

• Zurich Financial Services AG (OTC: ZFSVY) yesterday (Thursday) agreed to buy American International Group Inc.’s (AIG) auto insurance unit for $1.9 billion. The deal marks the biggest divestment by AIG since the U.S. government rescued the insurance company in September, Reuters reported.

• The New York Times Co. (NYT) is cutting several weekly sections and will reduce freelance spending to save millions of dollars in annual costs, according to a memo obtained by Reuters. The paper is cutting pay for non-unionized employees at The Times and other papers and is seeking similar concessions from unionized employees. It also has threatened to shutter The Boston Globe if it cannot find ways to cut millions of dollars in costs at the money-losing paper.

• Canadian factory sales rose 2.2% in February the first time since July, according to a report yesterday (Thursday) that contained other small signs of economic recovery, Reuters reported. Excluding autos, sales slipped 0.2% but the decline was less steep than in the previous six months when the U.S. recession dampened appetite for Canadian goods.

• A pullback in new home construction in the U.S. combined with slower-than-expected economic growth in China pulled the price of copper down yesterday (Thursday).  Copper for three months delivery on the London Metal Exchange closed at $4,729 per metric ton – down $90 from Wednesday’s close, Reuters reported.

• Without enough votes for passage, Senate Democrats are scaling back legislation that would let bankruptcy judges alter mortgages, a spokesman for Senate Majority Leader Richard Durbin (D-IL), told Bloomberg. The main problem is whether the “cram down” provisions in the bill should be limited to certain loans or a specific timeframe, a spokesman for Durbin said. The bill passed the House of Representatives in March.

Source: Global Investment News Briefs Friday, April 17, 2009