A tough week ahead to gauge direction on stock markets.
There’s some help from oil and commodities like gold and copper which had a small rebound on Friday but as we saw last week, these rallies don’t have much juice in them.
Earnings dominate US markets, interest rates and inflation will be the focus here, with earnings to follow in coming weeks.
In the US watch tech stocks, they could be vulnerable to a sell down.
Here, situations like Alinta, Rinker, CSR and Qantas will attract some attention this week. Alinta especially for the suggestion from Babcock and Brown that it might put together a bid to rival the buyout plan from senior management and former chairman, John Poynton.
If you had to punt on a trend this week: watch the way US tech stocks travel.
With solid reports from IBM and Apple last week there was a feeling that the best was to come from the sector. But it would seem from comments by both companies (and likewise from chipmaker, Intel) that many investors are too optimistic at techs for the rest of 2007.
NASDAQ has been rising in recent weeks on this optimism and the Apple iPhone and the millions of iPods sold in the fourth quarter seem to have obscured the reality.
US stocks will be vulnerable to earnings shocks on the downside or the lack of any strength in forecasts for 2007.
Friday’s bounce for commodity prices will help here today with the oil and mining stocks but again, after last week’s volatility, don’t hold your breath waiting for a continuing run up: the outlook for commodities such as oil, copper, gold and the grains complex is just too confused at the moment.
For the week the Dow rose 0.08 per cent to end on Friday at 12,565, while the S & P 500 was a touch easier and finished at 1,430.
But NASDAQ dropped two per cent for the week, finishing at 2,451 on Friday.
It was the biggest drop in a month and the quarterly report and forecasts from Apple drove much of the sentiment change.
US broking analysts reckon technology companies will be the best performers in the S & P 500’s 10 main industry groups.
Shares of computer-related companies had been the year’s best performers up till last week on optimism that their earnings will grow more than twice as fast as the S&P 500.
But there isn’t so much optimism now and although IBM did well it is no longer the biggest influence any more.
Also not helping sentiment in the tech area was the poor result from Motorola and the news that it will cut 3,500 jobs.
Motorola shipped a record 65.7 million handsets in the fourth quarter, a 47 per cent increase from the same quarter of 2005.
But earnings slumped by almost 50 per cent to $US624 million, as the company gave up margin to protect market share.
Motorola cut the 3,500 jobs to try and cut costs (or make up for the margin lost by management in their bid to protect share)
The figure is five per cent of Motorola’s worldwide workforce of 67,000 and the company hopes to save $US400 million over the next two years.
Meanwhile one thing to watch for is the worldwide launch next week of Vista, the new consumer PC operating system to replace Microsoft’s Windows. New versions of Microsoft Office are on their way.
The launch is going to happen on January 30. Vista for business was launched somewhat indifferently last November with a shortage of associated programs from other suppliers.
All retailers received stocks late last week of Vista.
It will help NASDAQ sentiment in the US.
Here expect a blitz from Harvey Norman (who are opening just before midnight for the launch), JB Hi-Fi, Coles Myer through Officeworks, David Jones and others.
At 11 pm on January 29 Gerry Harvey will open 44 of his franchised stores open across Australia will for the release of Vista.
Gerry Harvey will sell the first copy of the new Windows Vista operating system at the company’s Alexandria store in Sydney. According to the company the first official copy will go on sale in Alexandria at 11.59 pm on January 29, one minute before the official release date of January 30.
Amid all the hype, investors should realise it’s a one-off and that not all PC users will want Vista.
Here in Australia Investors might find themselves being a bit blind-sided by the hype and the worries of US investors about the health of tech stock earnings this year.
It’s of little influence here unless NASDAQ goes into a wholesale retreat.
Oil, copper inflation and interest rates will be better guides here. And, of course, gold.