Third Quarter Results and QE2 Under Spotlight on Wall Street
With seven Dow blue-chip stocks due to release 2010 third-quarter result during this week, investors may have their attention temporarily diverted from the implications of the ‘quantitative easing’ proposed by the Federal Reserve as a means to boost the economy. The seven blue-chip Dow components are Bank of America, Johnson & Johnson, IBM, Caterpillar, American Express, McDonalds and Verizon. Other major companies in the banking sector releasing third-quarter results in the upcoming week include Morgan Stanley, Citigroup, Goldman Sachs, and Wells Fargo, while the tech sector releases include Apple and Yahoo. While analysts acknowledge that it’s too early in the third-quarter earnings season to make any judgments, thus far of the results posed, 83 percent have beaten estimates by analysts – an observation that adds an element of optimism for the week ahead.
However, there is also an element of apprehension and uncertainty linked to the speech made by Federal Reserve Chairman Ben Bernanke in Boston on Friday in which he noted that there would appear to be a case for further action by the Fed in order to boost the sluggish economy. He further revealed that the Fed had been investigating the rate of inflation and concluded that “for the first time in many decades…had to take seriously the possibility that inflation can be too low, as well as too high.” For cash-strapped Americans, the last thing they would want is a higher inflation rate pushing prices up. It has been reported that there is a lack of consensus within the Fed’s ranks, but no doubt more will be revealed following the Fed’s next meeting due to conclude on November 3.
Quantitative easing may sound impressive, the very word ‘easing’ hints at relief, but many believe there is an element of hocus-pocus in printing money out of thin-air and throwing it at the problem in the hopes that it will disappear – which is basically what the Federal Reserve will be doing if they go ahead with their proposal. As this is the second time the Fed has set sail to navigate the murky waters of economic confusion in this manner, it’s seems apt that the proposal is being referred to as QE2. There are a host of concerns being expressed regarding QE2, with analysts referring to the so-called ‘lost-decade’ of Japan where interests rates at Japan’s central bank were at zero, but the economy persistently remained flat; as well as the concern that the money printed may not be channeled in the right direction to achieve the desired effect. Certainly the week ahead, and beyond, looks set to offer plenty for stock market traders to consider.