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Friday’s fall erases year’s market’s gains

SHARE Friday’s fall erases year’s market’s gains

NEW YORK — So much for that big January rally.

With the Dow Jones industrial average tumbling more than 213 points on Friday, stocks wiped out all of their early 2006 gains and are in the red for the year. And investors are likely wondering if things will head higher again any time soon.

To answer that, we have to look at what caused Friday's drop — earnings. When a company like General Electric Co., considered not only a rock-solid performer but also a barometer for the overall economy, misses its earnings estimates, that alone is enough to spook Wall Street.

But GE was just one in a recent streak of earnings disappointments that included such major companies as Citigroup and Intel Corp. And that's created intense concern that other companies' fourth-quarter results will likewise fall short. The expectation of those disappointments fueled the selloff, with investors dumping stocks ahead of earnings reports in hopes of softening the blow.

Due to the selloff, the damage for the week was sizeable. The Dow fell 2.67 percent, the Standard & Poor's 500 index lost 2.03 percent and the Nasdaq composite index slid 2.99 percent.

The immediate solution, of course, is better earnings. Strong showings by major corporations in the next week could help stocks come around, though it's unlikely that Wall Street will rebound as much as it's lost right away. Longer term, a signal from the Federal Reserve after its Jan. 31 meeting that it plans to stop raising interest rates could prompt more buying as well.

After that, however, the markets must contend with very high oil prices and a slowing economy. What started as a great year could end up tougher than expected.

Economic data

While earnings worries will likely overshadow most economic reports this week, the first glimpse of fourth-quarter gross domestic product from the Commerce Department is usually a market mover. The preliminary GDP figure, due out Friday, is expected to show 2.9 percent economic growth for the quarter, down from 4.1 percent in the third quarter of 2005. That number could be a little low, and a positive surprise could give stocks a boost — as long as earnings reports improve.

Earnings

Technology and financial stocks took a beating last week after the disappointments by Citigroup and Intel, and those sectors will be in sharp focus as earnings season continues.

On Monday, a pair of financial heavyweights will report earnings, possibly helping the sector overcome the Citigroup news. Bank of America Corp., reporting in the morning, is expected to earn $1.03 per share, up from 98 cents per share in the fourth quarter of 2004. Over the past year, the stock has traded in a relatively narrow range between $41.13 and $47.44, closing Friday at $44.19.

American Express Co. reports Monday afternoon, and is expected to earn 61 cents per share, down from 71 cents per share in the year-ago quarter. American Express is up 18.6 percent from its 52-week low of $43.34, set April 22, but fell $1.19, or 2.3 percent, to $51.40 on Friday as investors worried that consumer bankruptcies would hurt the company's credit business.

On the technology front, Texas Instruments Inc., also reporting Monday afternoon, could help boost tech stocks — if its earnings beat Wall Street's expectations. The chip maker is expected to post profits of 41 cents per share, up from 28 cents per share a year ago. Shares of Texas Instruments are up 52 percent from their 52-week low of $20.77 on Jan. 24, 2005, closing Friday at $31.66.

After Monday, of course, dozens of other major companies will report earnings through the week, including Dow components DuPont Co., Johnson & Johnson, McDonald's Corp., United Technologies Inc. and Verizon Communications Inc.