Earnings Reports Will Drive Wall Street

NEW YORK – Earnings news will drive Wall Street next week, but concerns about slowing profit growth and higher oil prices could keep a cap on any gains.

Quarterly results from widely watched companies such as Intel Corp. (INTC) and Johnson & Johnson (JNJ) will get the earnings season into full swing over the coming days.

A rash of economic data, including retail sales, the Producer Price Index (search) and the Consumer Price Index (search), also will attract attention.

But worries that companies may signal slowing profit growth in the year's second half could cause the market to drift, analysts say.

"This is what's known as the summer doldrums," said Larry Wachtel, senior vice president and market analyst at Wachovia Securities.

"We're going to have to settle for the fact that this is a range-bound market, volume is low and there's not much courage out there in terms of buying power."

Paul Cherney, chief market analyst at Standard & Poor's, said, "The concern is that we have reached a slowing point (for earnings growth).

"I expect the markets to stabilize and try to move higher, but I don't think there will be a herd stampede to the buy side."

For the week, stocks fell. The blue-chip Dow Jones industrial average (search) ended Friday at 10,213.22, down 0.6 percent for the week. The tech-laced Nasdaq Composite Index (search) finished the week down 3 percent, at 1,946.33, while the broad S&P 500 index (search)  declined 1 percent during the week, closing Friday at 1,112.81.

Investors had been hoping that second-quarter earnings would live up to — or even beat — the first quarter's impressive growth.

But the season has been kicked off by a raft of disappointing statements, causing analysts to scale back estimates.

Tech firms such as PeopleSoft surprised on the downside, slashing its forecast, and its stock fell as much as 8 percent, dragging the Nasdaq down on Wednesday.

Internet media company Yahoo Inc., in results released after Wednesday's close, reported a quarterly profit that more than doubled, driven by higher ad revenue. But Yahoo's stock tumbled in after-hours trading after it gave a current-quarter forecast below Wall Street estimates.

Yet blue-chip conglomerate General Electric Co. managed to bolster investor sentiment at the end of the week after Chief Executive Jeff Immelt called the U.S. economy "the best we've seen in years." GE, whose stock is among the 30 in the Dow, reported second-quarter earnings rose slightly.

"The first few days (of earnings) have been terrible," Wachtel said. "GE helped on Friday, but there's been a rash of negative pre-announcements. There are concerns that while numbers themselves will be OK, the guidance going forward will be less so."

Kicking off next week's run of quarterly earnings reports will be SunTrust Banks Inc. (STI) Monday, while Bank of America Corp. (BAC) will report Wednesday. Results from Citigroup Inc. (C) and Wachovia Corp. (WB) are due Thursday. The following week, J.P. Morgan Chase & Co. (JPM) will post results.

Among the technology-related firms, chipmaker Intel posts earnings Tuesday, while its rival and Silicon Valley neighbor Advanced Micro Devices (AMD) reports Wednesday. Apple Computer Inc. also reports Wednesday.

Consumer-focused companies reporting results next week include health-care products group Johnson & Johnson Tuesday and PepsiCo Inc. (PEP) Thursday.

"The focus next week is going to be on earnings," said Peter Boockvar, equity strategist at Miller Tabak & Co. "If they're just in line, it may not be good enough. It is a question of whether they exceed expectations. The market is looking for upside here."

One of the most important economic figures of the week will be Wednesday's retail sales number for June. Economists polled by Reuters are forecasting a 0.6 percent decline in overall retail sales after a drop in motor vehicle sales during the month.

"Consumers are 70 percent of the economy and if they begin to take a holiday, then we have a problem," Wachtel cautioned.

The U.S. Producer Price Index for June, due Thursday, will give a reading on inflation at the producer, or wholesale, level. The PPI tracks the prices of product components as goods move through the manufacturing and distribution process.

The forecast for the overall PPI calls for a gain of 0.2 percent in June, while the core PPI, which excludes volatile food and energy prices, also is expected to rise 0.2 percent, according to economists polled by Reuters.

Friday's release of the Consumer Price Index for June could also move the market. The CPI is closely watched by the Federal Reserve in determining interest rates, and a strong CPI series may encourage further rate hikes. Last week, the Fed raised the federal funds rate to 1.25 percent from a 46-year low at 1 percent, the first tightening in four years.

The forecast calls for both overall CPI and core CPI, which excludes food and energy prices, to rise 0.2 percent in June, according to economists polled by Reuters.

Wall Street will continue to be concerned about high oil prices, which have an impact on corporate profits. Oil futures jumped back above $40 a barrel this week. The NYMEX August crude contract settled Friday at $39.96.

"There's a geopolitical premium in the oil price that's never going to go away until things settle down in Iraq," Wachtel said.