Is the worst over?

Is the recent (mini) rally justified? One analyst points out that the financial woes are far from over - the US housing credit troubles have not seen their end; the domino effect have yet to reach consumer credit card and auto loans- is this really the time to be positive about the financial market?

NEW YORK 20 April: Investors will have seen enough corporate results by the end of this week to determine if the recent string of encouraging earnings was an anomaly or a real sign stocks can weather the credit crisis and economic slowdown.

If the market in the next five sessions manages to match last week's gains, it could put the Dow in positive territory for the first time this year.

All three major indexes ended last week up more than 4%, with the Dow posting its best week since February.

The Dow and the S&P 500 each ended the week up 4.3%, while the Nasdaq ended 4.9% higher.

"I think for the market to extend these gains it would have to have more comfort that the earnings are moving up and consumer cycle has bottomed out," said Subodh Kumar, chief investment strategist, Subodh Kumar & Associates in Toronto. "Last week, the S&P 500 has gone below my fair value calculation of 1,350 to slightly above."

Last week's swift advance was powered by financial sector quarterly results that suggested banks have done a thorough spring cleaning, leading Wall Street to believe they purged their balance sheets of any trace of subprime exposure.

"We're not out of the woods," John Forelli, senior vice president, Independence Investment LLC, said, noting that upcoming results will be key.

"The earnings can continue to come out fairly strong, but the news won't be that ebullient. There will probably be more write-offs, and you're going to have a fair amount of companies doing layoffs," he said. "The financials are the ones that are the key as far as getting confidence back in the market."

All eyes will be trained on Bank of America on Monday when the No 2 US bank reports earnings. Expectations will be running high after Citigroup, the top US bank, and No 3 bank JPMorgan Chase & Co delivered results last week that pleased Wall Street and sent their shares up more than 5%.

Other key earnings announcement from the financial sector include CME Group Inc, operator of the Chicago Mercantile Exchange and the Chicago Board of Trade, Tuesday and credit card and travel services company American Express Co on Thursday.

Investor sentiment about global growth improved this week after several US blue chip companies said robust overseas sales drove positive earnings results, reflecting strong demand overseas and the benefit of the weak dollar when overseas sales are converted into dollars.

"The real story will be strength in the global economy continuing to give a lift to companies like we saw this week with Caterpillar, Honeywell and IBM, said Fred Dickson, market strategist, director of retail research, DA Davidson & Co.

Investors will be watching for similarly strong foreign sales from oilfield services firm Halliburton Co, mobile phone chip maker Texas Instruments, diversified manufacturer 3M Co, jet maker Boeing Co and soft drink company Pepsico.

The housing market will be in the spotlight this week, with figures on tap for sales of both existing and new homes. Sales of existing homes, due Tuesday, are forecast to have slowed on an annualised rate, while new-home sales are seen having picked up slightly.

Several earnings reports from home builders will give investors another gauge of the housing sector. Data released earlier this week showed builder sentiment hovering near all-time lows in April.

No 3 builder Pulte Homes Inc and smaller rival Ryland report earnings on Wednesday. MDC Holdings Inc, the No 10 home builder, reports results on Thursday.

While the earnings outlook has improved this week, concern about the health of the US consumer is still running high and could pose an obstacle to the market's recovery.

This week crude oil reached a record of US$116 (RM371.20) a barrel and US rice futures soared, sparking worries that global turmoil over food prices could lead to panic buying, sending prices higher still.

The final reading of April's Reuters /University of Michigan Surveys of Consumers, due on Friday, will show whether higher food and fuel costs and the shrinking job market have made shoppers more pessimistic.

The survey's preliminary April reading showed confidence dropped to its lowest level in more than a quarter century. — Reuters