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Sep.28

11:44 AM ET

Friday, 28 Sep 2007

Earning's Season Becomes Talk Of Street

Posted By:Patti Domm

Sectors:Financial Services

Companies:First Data Corp | Goldman Sachs Group Inc

You can hear the collective sigh of relief as Wall Street gets ready to slam the books on the third quarter today. It's hard to believe after all that rocking and rolling, but the Dow is up 3.8% for the quarter, as of yesterday's close. The S&P 500 is up 1.9% and the Nasdaq, high on a tech rally, is up 4%.

Stocks are trading lower and still a bit indecisive, after meandering in a tight range after the opening.

Chicago Purchasing Managers data came in stronger-than-expected at 54.2, compared to the consensus 53. Before the opening August personal income was reported at 0.3% below the consensus of 0.4%. Consumer spending rose 0.6%, stronger than the 0.4% expected. Consumer sentiment though showed signs of weakening in September, coming in at 83.4 from 83.8 the month earlier.

But perhaps the best piece of news was the tame inflation read in the year-over-year PCE deflator. This data point is a Fed favorite. Core PCE was reported at 1.8%, within the Fed's comfort range of 1-2%.

There are also a few headlines troubling traders including a seemingly familiar comment on the chances of a recession from former Fed chairman Alan Greenspan and a reduced global growth forecast from Goldman Sachs [GS Loading... () ] .

Greenspan told the BBC the probability in recession is less than 50/50. "The danger of recession has obviously risen but in my judgment...is still less than 50/50. It's less optimistic than one would like," he said on BBC radio. Greenspan has been saying there's a one third chance of a recession but recently told CNBC's Steve Liesman the chances have somewhat increased so in our view these comments are not any more negative than his previous view.

Fed Speak
Four Fed officials are on the speaking circuit today, including Atlanta Federal Reserve President Dennis Lockhart (10 a.m.), San Francisco Fed President Janet Yellen (10:15), Fed Governor Frederic Mishkin (1:15), and St. Louis Fed President William Poole (2:30 p.m.). Liesman will report on their comments.

Looking Ahead
As the quarter winds down, talk has moved to the upcoming earnings season. CNBC.com's Christina Cheddar-Berk reports that third quarter profits are expected to show the weakest growth in five years but there could be a pickup in fourth quarter profits. S&P forecasts 2.1% growth and Thomson expects a 4.4% gain in third quarter results. Cheddar-Berk writes that the credit crunch is expected to make a dent in the financial sector, which makes up 28% of the S&P 500.

"Squawk Box" this morning spoke with Blackrock Vice Chairman Bob Doll who said earnings estimates have to come down, but investors, right now, are taking things in stride.

"Our view is we're not necessarily out of the woods," said Doll. "The aftermath of the credit crunch, lingering effects of it, earnings estimates that have to come down -- All those things that at some point will weigh on investors. But the upward creep is 'Gee, the Fed is giving us some help. Earnings seem like for the third quarter, they are going to be ok. We can breathe a sight of relief - markets are mostly operating.' And folks are looking to choose the glass as half full."

Cronus Futures Management's Kevin Ferry told "Squawk" this morning that he thinks the third quarter's earnings will come in okay on reduced expectations but traders may start rethinking their positions as the new quarter starts.

"The (S&P futures) are up for the quarter. Treasurys are having a marvelous quarter, and most of it is having to do with the debasement of the currency. So I think its a very bejiggety time for investors and the changing of the calendar is going to mean a lot for speculators like us down here try to move against this euphoria or the good things that happened late in September," he said.

Uh oh. Ferry, a straight talking trader who frequents early morning Squawk, went on to say we can expect more volatility as we move into the fourth quarter.. So don't be lulled by the past week.

"You've got very lucrative prices in the market for people to take a step back and say 'Is it really this good?' and that's going to cause a lot of trading, a lot of debate, what I would say volatility, debate in the market place early in the month in October," Ferry said.

Where Stocks Started Today
The Dow closed up 34 Thursday to 13,912, a mere 88 points from its 14,000 record. Year-to-date the Dow is up 12%. The Dow is setting up to finish its best month since May and its best September since 1998. The S&P 500 finished up 5 at 1531, its highest close since July 23. It could also have its best month since May and its best September in nine years. The Nasdaq is on the same path. .It rose 10, its highest close since July 19. The Nasdaq is up 12% year to date

Creeping Worry
As the dollar continues to explore new lows, there is an increasing amount of talk that perhaps the global economy won't withstand a weaker U.S. economy, especially if that economy is counting on Americans spending their shrinking currency.

Goldman Sachs today pared its U.S. growth forecast for this year to 2.0% from 2.1%. It trimmed Japanese growth forecasts for this year to 2.0% from 2.5%, and it trimmed Europe to 2.6% from 2.9%. Goldman also cut next year's targets. Goldman says its view has changed since July and the mood in financial markets is darker. It says data from the developed world is showing signs of wear.

Good News
We've been talking about the improvement in credit markets this week and one story that's cheered investors is the First Data story. Yesterday, investment banks sold $9.4 billion in loans issued by First Data Corp [FDC Loading... () ] . to finance its leveraged buyout, nearly double the $5 billion the banks were trying to sell. Underwriters though will hold on their own books the bulk of the $24 billion in loan financing for the KKR buyout of First Data.

Jersey Guys
If you flipped over to the "Today" show this morning while "Squawk Box" was on, we know you did it to see a famous Jersey guy. Ok, so Bruce Springsteen was on, but so was CNBC's Jim Cramer.

Cramer this week caused quite a stir when he proclaimed "Don't buy!" in reference to the housing market on the "Today" show. More than just a few realtors were unhappy with the comment. This morning, "Today" gave an industry representative the chance to debate Cramer on the show. If you know Cramer, he didn't back down. He does say things will pick up in a year after some more help from the Fed.

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