NEW YORK – Investors are looking for an onslaught of company earnings and economic data next week to give direction for U.S. stocks after some early signs of slower profit growth got the year off to an uncertain start.
With the exception of Apple Computer Inc.'s (AAPL) impressive performance, the early phase of earnings announcements has left investors underwhelmed.
Alcoa Inc. , the world's biggest aluminum producer, and Genentech Inc. (DNA), the world's second-biggest biotech company, reported lower-than-expected fourth-quarter earnings.
Looking forward, General Motors Corp. (GM) said it expects earnings in 2005 to drop due to lower profits at its financial services unit and a $1 billion increase in health-care costs.
For the week, the blue-chip Dow Jones industrial average (search) ended down 0.43 percent Friday, marking its third consecutive week of losses. The Standard & Poor's 500 index slipped 0.14 percent for the week and the tech-heavy Nasdaq dipped 0.03 percent.
Next week has only four trading days after Monday's holiday, Martin Luther King Jr. Day (search). But the sheer volume of earnings and economic news will give investors plenty to digest.
"I don't think the earnings trend has been established yet," said Jim Paulsen, chief investment strategist at Wells Capital Management, which oversees about $150 billion of assets.
"It is a very limited sample at this point. The next two weeks are very important -- it could go either way."
While fourth-quarter 2004 earnings overall are expected to grow at least 15.7 percent year over year for companies in the Standard & Poor's 500 index, most sectors will lag that rate considerably, according to Reuters Estimates.
Companies scheduled to report earnings next week include 3M Co. (MMM) and Yahoo Inc. (YHOO) on Tuesday; General Motors Corp. (GM) and J.P. Morgan Chase & Co. (JPM) on Wednesday; Citigroup Inc. (C) and Ford Motor Co (F) on Thursday, and General Electric Co (GE)and United Technologies Corp. (UTX) on Friday.
Analysts have warned that for many companies, higher costs of raw materials, energy and wages, coupled with rising interest rates, could slow corporate profit growth in 2005.
"The key thing will be what we learn from the earnings reports -- how much pressure is on profitability because of the material cost increases -- and what management says about the first-quarter outlook," said Henry Herrmann, chief investment officer at Waddell & Reed.
Higher oil prices -- which can dampen consumer spending and corporate profits -- are also weighing on investors. U.S. crude oil futures ended higher for the fourth day in a row Friday after hitting fresh six-week highs amid cold weather forecasts.
Crude for February delivery settled at $48.38 a barrel on the New York Mercantile Exchange (search). It rose to a session high of $48.65, the highest since the Dec. 1 peak of $49.12.
In economic data, investors await Tuesday's announcement by the Treasury Department of net inflows into U.S. assets for November to get an indication of whether capital inflows were enough to offset the record U.S. trade deficit that month.
"After the record trade deficit, investors will be a little bit nervous going in to that number," said Michael Sheldon, chief market strategist at New York brokerage Spencer Clarke.
"But overall, there is a sort of love-hate relationship between the United States and the rest of the world. At this point, they are going to continue to buy our Treasuries and we are going to continue to buy their goods."
The week's major economic indicators will fall mostly Wednesday: the Consumer Price Index (search) for December, which will give a reading on inflation at the retail price level, and December housing starts, as well as weekly jobless claims and the Federal Reserve's "beige book" report, which gives an anecdotal view of economic conditions from the perspective of the Fed's 12 regional banks.
The jobless claims, usually out on Thursday mornings before the stock market opens, are being released a day early because Thursday is the inauguration of President Bush to his second term. First-time claims for unemployment benefits are forecast to drop to 345,000 for the week ended Jan. 15, from 367,000 the previous week.
Economists surveyed by Reuters predict that the overall CPI will be unchanged in December, after a 0.2 percent gain in November, while they see core CPI, which excludes volatile food and energy prices, up 0.2 percent, matching November's gain.
U.S. housing starts in December are projected to rise to a seasonally adjusted annualized rate of 1.9 million units, up from 1.771 million in December, the Reuters poll of economists showed.
Thursday, the index of leading U.S. economic indicators and the semiconductor book-to-bill ratio will be released, followed by Friday's report from the University of Michigan (search), which will give a preliminary read on January consumer sentiment.