Earnings news from Citigroup and Bank of America are the big hurdles ahead of Friday's opening bell.
Those two reports have been dreaded by investors, who fear revelations of new writedowns and losses. Both banks have been in the news this week, and speculation surrounding them has contributed to the market's gloom. The S&P financial sector lost another 5.8 percent Thursday as Bank of America declined 18 percent into the single digits and Citigroup lost another 15 percent.
Both banks also moved up their earnings release dates from next week, following a similar move by JP Morgan which reported better-than-expected results Thursday. Citigroup is expected to report a loss of $1.25 per share, but some analysts expect worse. The expectations for revenues for the fourth quarter are $14.1 billion, nearly double the poor showing in the year earlier quarter. Investors are also hoping for a glimpse at Citi's future plans when it talks to investors in an 8 am conference call. After its spinoff of its Smith Barney unit into a joint venture with Morgan Stanley , it is expected Citi will target other assets for sale.
Bank of America, which acquired Merrill Lynch Jan. 1, is expected to also explain a new deal with the government when it reports earnings at 7 am Friday.CNBC's Steve Liesman reports that Bank of America has struck a deal with the governmentwhich would guarantee up to $120 billion of its debt and inject it with new capital. Bank of America was expected to have earned $0.01 per share, on revenues of $20.7 billion. The new plan to backstop Bank of America is similar to one the government crafted for Citigroup late last year.
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On Thursday, Citi was surrounded by rumors that it had deteriorated so much that it was in talks with the government to nationalize the bank. However, Citi denied the rumor to CNBC's Charlie Gasparino.
Stocks recovered from their session lows in the afternoon Thursday, before closing slightly higher. "You had Citigroup denying they were in talks about the defacto nationalization of the bank. That was the big overhang going into the weekend. We had been hoping to get a little inauguration bounce,' said Peter McCorry of Keefe Bruyette.
Also Thursday, Democrats revealed details of their stimulus proposal, and the Senate approved release of the remaining $350 billion in Troubled Asset Relief Program funds, as requested by President Bush.
The Dow closed up 12 points at 8212, after dipping down below 8,000 to an intraday low of 7,995. The S&P 500 rose 1 point to 843, and the Nasdaq rose 22 points, or 1.5 percent to 1,511.
The dollar edged up slightly against the euro and a bit more against the yen. Long-dated Treasurys continued to attract buyers, knocking the yield on the 10-year to 2.203 percent.
Oil continued its decline, losing $1.88 per barrel, or 5.04 percent, to $35.40.
The markets will also focus on the consumer price index, reported at 8:30 am ; industrial production, at 9:15 am and consumer sentiment at 9:55 am Treasury international capital flow data is released at 9 am.
Richmond Fed President Jeffrey Lacker speaks on financial conditions at 12:15 pm.
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Stocks to Watch
Intel , meanwhile, reported a 90 percent drop in profit, but the company's shares rose in afterhours trading. The company had warned the economy took a bite out of its profits and hurt its ability to forecast. Intel said it could not give an outlook on revenues but said, for internal purposes, it was using $7 billion as an estimate.
But later on a conference call, Intel said it believes its lowered margins will trough in the first quarter. Intel officials were also reported to have said channel inventories fell dramatically in the fourth quarter and that trend will continue in the current quarter, but they believe it will slow and improve in the second quarter.
Genentech earnings rose 47 percent to $931 million or $0.87 per share but were still below expectations. After the bell, its stock slid.
Miracle on the Hudson
Everyone will watch with fascination for new developments in the Hudson River landing Thursday of the U.S. Airways jet bound for Charlotte, N.C. from New York's LaGuardia Airport. After the jet apparently hit a flock of geese, the pilot safely landed the plane on the surface of the river and all 155 people aboard were evacuated before the jet sunk. N.Y. Gov. David Paterson said it was a miracle on the Hudson. Indeed.