NEW YORK – Most U.S. companies have reported earnings and the flow of economic data slows next week, so investors will look to U.S. trade figures and earnings from leading technology stocks Dell and Cisco for fuel to sustain the market's 2-week-old rally.
Investors faced a flood of earnings this week, the Iraqi election, commentary and a rate hike from the Federal Reserve (search) as well as economic data on new jobs, January same-store sales and President Bush's State of the Union Address (search).
For the week, the Dow Jones industrial average (search) ended up 2.8 percent, the Standard & Poor's 500 index rose 2.7 percent and the Nasdaq Composite Index advanced 2.5 percent.
The major indexes are still lower for the year but have clawed back over the past two weeks after starting 2005 with three down weeks in a row.
With most geopolitical issues moving into the background, it is "back to the basics" for U.S. stocks, said Andrew Milligan, head of global strategy at Edinburgh, Scotland-based Standard Life Investments, which manages $180 billion.
A Group of 7 meeting in London on Saturday will be watched for comments on the dollar, although analysts don't expect the meeting to reverse the fortunes of the falling greenback.
On Thursday the government releases U.S. trade data for December, and economists expect the deficit to fall to $57.10 billion from November's record $60.30 billion.
When the November trade figures were released last month, showing the deficit widening unexpectedly, investors were spooked.
"A critical question on the trade deficit would be whether or not a turn has begun to happen," Gordon Fowler, chief investment officer, the Glenmede Trust Company, said.
It is probable the deficit has narrowed because oil prices have stabilized and the weak dollar gives U.S. manufacturers an edge over European counterparts, Fowler said. But, "if it doesn't improve, I think investors will be patient but uneasy," he said.
Other economic data due next week includes December consumer credit on Monday and the January federal budget on Thursday.
So far, 363 companies in Standard & Poor's 500 index have reported results for the quarter, with 67 percent exceeding Wall Street profit expectations and 20 percent falling short of forecasts, according to data from Reuters Estimates.
Among the larger companies set to report next week are Dell Inc. (DELL), the world's largest personal computer maker, and Cisco Systems Inc. (CSCO), the world's No. 1 network equipment maker. Others reporting include technology consultants Electronic Data Systems Corp., Prudential Financial Inc. and insurers Aetna (AET) and American International Group Inc. (AIG).
"It looks like we're going to be up 20 percent, year over year for earnings," Alfred Kugel, chief investment strategist at Stein Roe Investment Counsel, said. "The earnings have really been quite good and better than estimates, thanks in part to the energy companies."
That trend is expected to continue next week, Kugel said.
"We've had good earnings reports and decent economic reports. We've gotten two up weeks, and we should have another one," he said.
Investors will most closely scrutinize the results from Dell and Cisco for hints on the future health of the battered technology sector. So far this year, technology stocks have fallen nearly 5 percent.
Bear Stearns analyst Andrew Neff, who covers Dell, expects the computer maker to report in-line results with modest upside potential, citing solid demand for personal computers and better component pricing, according to a note for clients.
Pamela Hegarty, investment manager and global tech team leader at Baring Asset Management, said she was "pretty positive" about Dell, a stock owned by the funds she manages.
"My guess is that they would beat earnings estimates by a penny and that they speak positively about the outlook for the next quarter," she said.
On tech earnings in general, she said, "There have been mixed messages through earnings, but I think the overall bias has been positive."
In the previous reporting period in November, an optimistic outlook from Dell helped to boost technology stocks. The day after the computer maker reported earnings, Nasdaq gained more than 1 percent.