NEW YORK – Stocks should stay firm next week if the Federal Reserve (search) says the economy is recovering and if corporations entering the heart of the so-called confession season go slow on profit warnings.
But jobs fears or data showing slow durable goods orders in August could hurt stocks, analysts said, noting that the market has enjoyed a good run since it bottomed out last month.
Blue Chips slipped last week for the first time in six weeks after warnings about upcoming quarterly results from some big names, including Coca-Cola Co. (KO), Tribune Co. (TRB) and Nortel Networks Corp. (NT).
The Dow Jones industrial average ended down 0.28 percent for the week, while the Standard & Poor's 500 finished up 0.41 percent. Nasdaq ended the week 0.83 percent higher.
Subodh Kumar, market strategist at CIBC Markets, said stocks should hold firm next week unless there is a nasty surprise in August durable goods data due Friday.
"The recovery in equity markets will continue. I think some of the fears on energy pricing are coming out, the economic data has been mixed but that is not surprising," Kumar said.
Against this background, Kumar added, "the durable goods number will be key."
On average, economists expect the data to show orders, excluding transportation and defense goods, rose 0.8 percent.
As for confession season, September is on pace to be the worst month for profit warnings in about a year and half, with U.S. companies issuing about two profit warnings for every raised forecast, according to Reuters Estimates. The final weeks of the quarter often herald an onslaught of revised forecasts as companies close the books on the period.
"In the near term, earnings disappointments like these would be an important factor," said Owen Fitzpatrick, Head of U.S. Equity Group, Deutsche Bank Private Wealth Management.
The market is set for the Federal Reserve to hike interest rates 25 basis points to 1.75 percent Tuesday. Analysts said investors will be looking beyond the Fed's third rate hike of the year for reassuring signals that the economy is on recovery path -- especially jobs.
"The rate hike is petty much factored in, employment is still the key. There is worry about lack of job growth," said David Wyss, chief economist of Standard & Poor's.
These reports are often seen as a bellwether of the overall performance of financial markets. CIBC's Kumar said it would help the market if all four report favorable results.
Otherwise, jitters about corporate earnings warnings could continue to weigh. So far the third quarter has seen 583 negative preannouncements, up from 362 negative announcements for the same period last year, according to Reuters Estimates data.
Companies issuing warnings have blamed high energy prices, slower consumer demand and overall pricing pressure on products as reasons for missing forecasts, said Ashwani Kaul, Reuters Estimates' senior market analyst.
A big disappointment this week was No. 1 soft drink maker Coca-Cola, which said its second-half earnings would fall below estimates. Mobile phone chip maker Qualcomm Inc. said Friday its pretax income would be hurt by a change in how it accounts for its technology royalties.
Even if all remains positive, analysts said the market's upside is limited, mainly due to uncertainty ahead of U.S. elections.
"Not so much because the market is worried about the elections but simply because it adds to the uncertainty and the market does not like uncertainty," said S&P's Wyss.