NEW YORK – Markets will stay nervous about corporate profits next week as the earnings season moves into full swing, but Fed Chairman Alan Greenspan (search) could provide some relief with reassuring words on the economy.
And while economic data is thin on the ground, Greenspan could steal the show when he gives his semi-annual Congressional testimony. Following the recent interest rate hike to 1.25 percent, the focus will be on any indication the Fed chairman gives of the pace of future rises.
But analysts are skeptical over whether the market can be shaken out of its range-bound territory. Since the beginning of the year, the Dow Jones industrial average (search) is down around 2 percent while the Standard & Poor's 500 Index (search) has shed less than 1 percent.
"The institutional base is sitting on the sidelines waiting for something to happen," said Larry Wachtel, senior vice president and market analyst at Wachovia Securities.
"It's a grinding market and I see more of the same next week."
However, Ned Riley, chief investment strategist at State Street Global Advisors in Boston, thinks stocks could rise.
Riley drew comfort from positive reactions to reports from tech bellwether IBM and Dell Computer Corp. this week.
"The market is at least rewarding achievement, and I do think that will prevail next week," he said.
Stocks fell on the week. The S&P 500 was down 1 percent, racking up its fifth consecutive week of losses. The Dow fell 0.7 percent, its fourth straight week of declines, and the Nasdaq Composite fell 3.3 percent, its third straight down week.
Investors have so far been met with a mixed start to the reporting season, with profit warnings from technology companies and a slowdown in retail sales dampening the mood on Wall Street.
While second-quarter earnings growth for S&P 500 firms is expected to be 21 percent, according to Reuters Estimates, investors are worried about slowing profit growth as the year wears on.
"What's murky is the third and fourth quarters," Wachtel said. "The good second quarter is already known, but the guidance going forward is unknown. Valuation isn't cheap, so that's why we are left in this void."
Among the scores of firms reporting next week is Minnesota-based conglomerate 3M, which announces figures on Monday.
Ford reports on Tuesday, General Motors on Wednesday and Coca Cola Co. on Thursday.
Among the technology-related stocks, Texas Instruments Inc. reports on Tuesday, while AT&T Corp., the largest U.S. long-distance phone company, and Microsoft both report on Thursday.
Other stocks in focus could include Boeing Co. The group's sleek new 7E7 Dreamliner is certain to grab the spotlight next week when one of the world's biggest air shows opens near London.
Alongside earnings, the market will scrutinize Greenspan's semi-annual report on monetary policy Tuesday and Wednesday for hints on how quickly U.S. rates are headed up.
Many in the market are predicting another tightening in August and say the Fed funds rate will rise to 2.0 percent by the year end.
"If the market is fearing the Fed will have to move more aggressively, that will be negative for stocks, but if the Fed reassures that it has got inflation under control, that will be good for stocks," said Ian Morris, economist at HSBC.
Riley thinks Greenspan's speech could boost stocks.
"The Fed is probably discreetly pleased that the economic data is softer, which in turn would give it some breathing room relative to the expected step up in interest rate increases," he said.
But the high oil price will likely remain a concern to stocks. U.S. oil prices surged to a new six-week high on Friday as a falling dollar and the vulnerability of stretched global supplies spurred a new wave of speculative fund buying.
In addition, geopolitical concerns could be an issue in the run-up to the July 26-29 Democratic National Convention (search) in Boston. Security for the convention will be tighter than for any other event in U.S. history due to fears Al Qaeda may try to disrupt the election process, officials said on Wednesday.