Jittery Wall Street braces for earnings season

NEW YORK: Having lost some of its swagger from a powerful six-month rally, Wall Street heads into corporate earnings season with renewed skittishness about prospects for an economic recovery.

The latest economic data have cast fresh doubt on the notion of a strong recovery from recession, and investors will look to the upcoming quarterly reports for signs of whether Americans are emerging from a long retrenchment.

In the week ending last Friday, the blue-chip Dow Jones Industrial Average slid 1.84 per cent to 9,487.67, in a second straight weekly loss after the main indices hit 11-month highs in September.

The losses came on disappointing economic news, highlighted by a shock unemployment report on Friday that showed the labour market reversing course after several months of improvement.

"The market practitioners who believe the recovery is based on sand are seeing a lot of evidence in this and other recent data," said Cary Leahey, senior economist at Decision Economics.

The market now looks to corporate earnings, starting with Wednesday's report from aluminium giant Alcoa - the first of the blue chips to report results - for clues on the direction of economic activity.

"The looming question is whether investor expectations are now set at a reasonable level or too high considering the challenges that continue to face the US economy," said Fred Dickson, market strategist at DA Davidson & Co.

"We feel comfortable forecasting a nice rebound in corporate earnings even in a weak growth economy as most companies have trimmed costs thereby significantly raising productivity of their workforce during the last 18 months."

The market is still sitting on hefty gains after a solid 15 per cent rise in the July-September quarter for the Dow and S&P 500, and a six-month rally of around 50 per cent.

Analysts say the market needs to see evidence the economy is on the mend to add to those gains. - AFP