Investors to Take Economy's Pulse

Earnings season gets in full swing next week, when stock investors will comb through scores of corporate report cards to check the U.S. economy's pulse.

At the same time, investors hope oil prices will slip further from the record $58.28 a barrel hit early this week.

And they will pay close attention on Tuesday to the Federal Reserve's (search) minutes from its March 22nd policy-makers' meeting to see if they can get any hints about the pace and size of future interest-rate increases.

The dollar will bear watching before release of U.S. international trade deficit data on Tuesday. Economists see the nation's February trade deficit widening to $59 billion from $58.27 billion previously, according to a Reuters poll. A wider trader gap could hit the dollar, which in turn may scare foreign investors into pulling some money out of U.S. assets such as stocks and bonds.

But Wall Street's biggest preoccupation will be earnings.

"Next week the earnings season begins in earnest, with the market anticipating a decelerating rate of growth," said Jerome Jacobs, senior strategist at Putnam Investments (search). "So the market has the right level of skepticism priced in."

On Friday, stocks fell. But the major indexes ended the week higher, with the blue-chip Dow Jones industrial average up 0.55 percent. The broad Standard & Poor's 500 Index gained 0.71 percent and the tech-laced Nasdaq Composite Index (search) climbed 0.73 percent for the week.

Earnings on the Front Burner

Some big names are scheduled to report earnings next week, including Apple Computer Inc. (AAPL) on Wednesday, PepsiCo Inc. (PEP) on Thursday and two Dow components, Citigroup Inc., and General Electric Co., on Friday.

Last year's earnings bonanza, when low interest rates and tax cuts helped create heady growth of around 20 percent, will almost certainly not extend into this year, analysts said.

Consensus expectations are for first-quarter earnings growth of around 8 percent, according to Reuters Estimates. Some strategists are forecasting a number closer to 9 percent, but expectations of a double-digit rise are scarce.

"We will be rolling into the first real week of earnings, and with Wal-Mart bringing numbers down to the lower end of their range, people will be rightfully focused on what companies will deliver and how the consumer strength is going to be," said Alex Motola, portfolio manager with Thornburg Investment Management.

Wal-Mart Stores Inc., the world's largest retailer, warned this week that first-quarter earnings could fall short of its previous forecast as cold and wet weather hurt sales of more profitable seasonal items like clothes and lawn and garden equipment. Wal-Mart, however, is not scheduled to report its fiscal first-quarter earnings until May.

After Friday's closing bell, Ford Motor Co. (F) cut its 2005 earnings forecast. That sent Ford's stock down 3 percent in after-hours trading and also took down shares of rival General Motors Corp.

Ford cited higher oil and steel prices and a weak dollar as among the factors it saw worsening in the first quarter. Ford and GM report results the week of April 18.

On a positive note, Alcoa Inc. gave Wall Street some good news this week when it reported a first-quarter profit and said its revenues rose 13 percent. Alcoa, the world's biggest aluminum maker, was the first Dow component to report results.

Oil and Stock Prices Do the Tango

By Friday's close, U.S. crude futures prices had fallen almost $5 a barrel from the all-time high of $58.28 set on Monday. NYMEX crude for May delivery settled on Friday at $53.32 a barrel, down 79 cents for the day.

The drop in oil prices relieved some worries that higher energy costs will hurt corporate profits and consumer spending. In turn, the sliding crude prices helped drive a four-day rally in both the Dow and the S&P 500.

"Oil prices are the primary movers of stock prices. If oil continues to march higher, the stock market is subject to correction," said Tim Ghriskey, chief investment officer of Solaris Asset Management. "Everybody is hoping that oil prices decline. But oil is really in the hands of speculators here, which exaggerates price movement."

But falling oil prices don't always help the stock market. That was the case on Friday, when declining oil prices drove down oil producers' shares — hurting the Dow and the S&P 500.

Interest-Rate Jitters, Again

When the Federal Open Market Committee's minutes from its March 22nd meeting are released on Tuesday, analysts will look for confirmation of recent warnings on inflation by some Federal Reserve officials.

"It is all in the language and whether the Fed is tipping its hat on a more aggressive stance on interest rates, which is what the talk on the Street has been," Ghriskey said.

The Fed has raised interest rates seven times since last June — each time by 25 basis points. But many analysts now think a 50-basis-point rise could be on the horizon. The FOMC's next meeting is set for May 3.

Rounding out next week's economic indicators will be March retail sales, due on Wednesday; economists polled by Reuters expect a gain of 0.7 percent. On Friday, Wall Street will get a preliminary reading on April consumer sentiment from the University of Michigan, which economists see slipping to 91.5 from 92.6 previously.