Intel and CSX earnings beats could be positive for stocks Wednesday morning, but it is J.P. Morgan earnings that traders are watching.
The Dow Tuesday closed slightly higher after minutes of the Fed's last meeting showed a Fed mostly convinced that it would restart quantitative easing or even take other steps to stimulate growth if the economy does not improve.
The comments drove the dollar lower, and stocks rebounded from early losses. The Dow finished up 10 at 11,020 and the S&P 500 was up 4 at 1169. Agricultural commodities continued to climb, with corn adding more than 4 percent and soy bean, 2 percent.
"Everyone's waiting to see J.P. Morgan. The Street's always waiting for something, and now we're waiting for earnings," said Pete McCorry, who trades bank stocks at Keefe Bruyette.
Earnings Central
Intel stock was higher in the after-hours Tuesday, after it reported earnings and revenues that topped analysts' expectations. The chip maker earned $0.52 per share on revenues of $11.1 billion, up from $0.33 per share on revenues of $9.4 billion a year earlier. Intel said it continues to see "healthy worldwide demand for computing products of all types."
CSX shares also jumped after the closing bell on its better-than-expected profits and revenues. The rail company reported earnings of $1.08 per share, on revenues of $2.7 billion. CSX said volume was up 10 percent from the year earlier, a slightly lower level than last quarter's 13 percent. But the company said it was increasing capital spending in 2010, and that its positive financial results will also allow it to create jobs.
Besides J.P. Morgan, Host Hotels and Apollo Group report earnings Wednesday.
McCorry said J.P. Morgan will set the tone for the rest of the banking sector when it reports ahead of the opening bell. The company has an investor conference call at 9 a.m. "We've continued to push out what normalized earnings are going to look like (for financials.) We have yet to feel the effect of the true end game of regulation," he said.
"You haven't seen any loan growth and there's talk of QE to add more liquidity to a system that needs more on the demand side, than more liquidity," he said. Quantitative easing is expected to add more money to the banking system, as the Fed expands its balance sheet with the purchase of Treasury securities.
J.P. Morgan, considered a bellwether, is expected to earn $0.89 per share on revenues of $24.3 billion for the third quarter.
Investors will also be listening to the J.P. Morgan conference call for insight into the temporary freeze on foreclosures by lenders amid concerns about flawed processing and shoddy reviews of paperwork. Bank of America has frozen foreclosures in 50 states, while others, like J.P. Morgan and PNC, have suspended them in 23 states. States attorney generals are also looking into the banks' handling of foreclosures.
John Sprow, chief risk officer at Smith Breeden, said the stalled foreclosures are not currently impacting the secondary mortgage market, but they could if the freeze continues for too long. "It remains to be seen how much it mucks up the process. First of all people need to do this correctly. If people are really just rubberstamping things, they need to be careful because it's peoples' homes.
"Obviously, if it stops foreclosures and the halt lasts for an incredibly long time, then it would just be a huge backlog of homes, and if that continues for many months , the housing market possibly gets worse. It's sick, and we're starting to get the sickness out. But if you stop taking the antibiotics, you get sick again. It's going to increase losses. It's not a huge number. If it just stalls things for 45 days, they lose another month and a half of interest that they might other wise have," he said.
Dollar Dilemma
Win Thin, currency strategist at Brown Brothers Harriman, said talk about the foreclosure mess is beginning to become part of the market chatter, but it is so far not having an impact as it is unclear how it might affect the real estate market or economy.
On Tuesday, the prospect of quantitative easing continued to send the dollar lower. The greenback Tuesday slipped another 0.3 percent against the euro, to $1.3916. It fell to 81.8532 yen per dollar, the lowest close since April, 1995.
"The yen isn't that strong if you look at the real effective exchange rate (trade weighted and adjusted for inflation). The yen is about 15 percent weaker than it was in January, 2000," said Thin.
"So forget about the bilateral stuff..the yen is not a huge disaster. Sure, they'd rather have it up at 90, but it's not as disastrous for competitiveness as you would think," he said.
What to Watch
A disappointing auction of $32 billion in 3-year notes weighed on Treasury prices Tuesday and raised concerns about Wednesday's $21 billion auction of reopened 10-year notes. The auction is at 1 p.m.
"It's going to be interesting because the 3-year auction was pretty poor by any metric. I wouldn't call it a disaster. It had the highest dealer take down and lowest indirect bid since January 2009. We got used to 2- and 3-year auctions kind of coming and going, and this showed demand was a little more tepid," said John Briggs, Treasury strategist with RBS. The 3-year note was auctioned at a record low yield of 0.569 percent.
Briggs said the 10-year auction should do well, but it bears watching. "I don't see us going down a lot between now and Nov. 3 (Fed meeting), but I'm pretty wary at these levels. Until you see what the Fed has to say, you don't have much to gain. If there's going to be interest with the Fed (meeting) coming up, it should be in the 10-year note," he said.
There is not much in the way of data Wednesday. Import/export prices are released at 8:30 a.m.
Fed Chairman Ben Bernanke speaks on business innovation in Pittsburgh at 4:10 p.m., and Richmond Fed President Jeffrey Lacker speaks at 7:45 p.m. in Chapel Hill.
Wal-mart continues its investor meeting Wednesday in Bentonville, Ark.
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