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Is No One Safe? GE Results Cloud Earnings Next Week

Wall Street was shaken Friday when the usually reliable General Electricreported a surprise drop in first-quarter earningsand lowered its forecast for the rest of the year.

CNBC.com

And with several other blue-chip companies due to report earnings in the coming week, GE's disappointing results fueled worries that the bad news may be just beginning.

"It's put investors on alert that if this can happen with GE--with no pre-announcement--that it can happen to any financial services company," said Quincy Krosby, chief investment strategist at The Hartford.

"It places more importance on first-quarter earnings and guidance than we've seen in many years."

In an interview on GE-owned CNBC, CEO Jeff Immelt blamedthe sudden collapse of Bear Stearns and the worsening credit crunch for GE's earnings surprise. He also described the poor results as a "bump in the road," though the company lowered its earnings outlook for the entire year.

Whether other big companies will follow GE is unclear. But what so unsettled Wall Street was that a big US multinational like GE--with strong overseas operations--could be blindsided by exposure to financial markets.

"GE is supposed to outperform in bad markets, they always have," said Vince Farrell, managing director of Scotsman Capital Management, in an appearance on CNBC. "This is a big shock to the system. It's a big shock to Jeff Immelt's credibility as a leader."

As such, it has created even more uncertainty as earnings season gets underway.

"There's nervousness that CEOs do not know what's in their books," Krosby says. "We have the financials coming next week. The market wants to get through that and say, are we going to get any surprises from companies that we didn't think had a problem?"

The market next week faces key earnings reports from financial giants JPMorgan Chase , Merrill Lynch and Citigroup , as well as eight Dow components including Johnson & Johnson , IBM and Caterpillar .

Few expect much from financials, with most earnings expected to be sharply lower from the year ago. But better things are anticipated from the large industrials, especially those that have strong overseas components. And if those earnings disappoint the reverberations could be huge.

"Everyone knows that the problems in credit markets are fairly severe," said Brian Gendreau, investment strategist at ING Investment Management. "They're improving slowly, though the markets are still fairly dysfunctional. What people don't know is whether the problems are affecting the rest of the economy."

Yet there was still considerable hope that the companies that have properly diversified overseas will continue to perform well, despite the problems the credit crunch may be posing at home. In fact, GE's performance would have been far worse had it not seen substantial growth in international and emerging markets.

"It lends credibility to the notion that while we may be seeing a slowdown globally, the demand in emerging markets is holding up as far as infrastructure is concerned," Krosby said. "Obviously you want to see the total of GE come in stronger, but if you take GE as a bellwether of what's going on around the world in different industries, it at least validates the infrastructure thesis. That's a very important thesis."

But on the other side, there's a feeling that GE should have accounted for the credit weakness and is lighting a flare for problems ahead.

Ron Ianieri, chief options strategist at Options University investor service, said the deeper problems in blue-chip companies may have been masked recently because of the relatively decent performance of the Dow in the past month. He sees GE as a portent of things to come in earnings season.

"They give probably the best single indication of what's going on in the economy in general. They're almost an S&P index themselves," Ianieri said. "When GE has this type of trouble that means we have major situations in multiple areas. I'm expecting this earnings season to have ... some disappointments across a very broad range of areas."