Wall Street's Eyes Trained on Earnings, Inflation

Earnings from big companies like Intel Corp. (INTC) and Pfizer Inc. (PFE), as well as key inflation reports, will help determine whether U.S. stocks will continue to skid lower or bounce back next week.

Monday kicks off one of the heaviest weeks of the quarterly earnings season and some of the other companies slated to report include General Motors Corp. (GM) and Ford Motor Co. (F), Internet companies eBay Inc. (EBAY)and Yahoo Inc. (YHOO), financial heavyweight Merrill Lynch & Co. (MER) and soft-drink giant Coca-Cola Co.(KO).

"Earnings are starting to dominate the market," Rick Meckler, president of investment firm LibertyView Capital Management, said Friday. "The bigger names are going to set the tone for their sectors."

For the week, the blue-chip Dow Jones industrial average (search) suffered its worst weekly decline since March 2003 -- down 3.57 percent. The broad Standard & Poor's 500 Index (search) -- down 3.27 percent -- and the tech-laced Nasdaq Composite Index (search) -- off 4.56 percent -- had their biggest weekly drops since August 2004.

On Friday, all three stock indexes ended at fresh lows for the year and their lowest closes in 5 1/2 months. The sell-off was driven by disappointing results from International Business Machines Corp. (IBM), released after Thursday's closing bell.

Two reports published this week by the Commerce Department (search) proved to be a double whammy for rosier growth predictions in the world's largest economy.

First, the U.S. government said Tuesday the trade deficit ballooned to a new record in February, and then Wednesday, retail sales for March proved much weaker than analysts had foreseen.

Those reports cast more doubt on the health of the U.S. economy, which will place added importance on the financial outlooks that companies give next week.

"Whenever you reach uncertainty about whether the economy is slowing down, guidance takes on added importance," said Anthony Chan, managing director and senior economist of J.P. Morgan Asset Management.

For example, Apple Computer Inc. (AAPL) reported better-than-expected quarterly earnings on Wednesday. But its outlook fell short of some investors' very high expectations and helped send stocks tumbling lower the next day.

"I think (the upcoming) earnings are going to be OK -- I don't think they will knock the socks off people -- but the forecast is what gets ugly," said Greg Church, founder and chief investment officer at Church Capital Management.

Investors will scour data on consumer prices and producer prices for any signs of inflation, strategists said.

The Producer Price Index (search) for March is due Tuesday, and economists expect a 0.2 percent gain for the core figure that excludes food and energy. The Consumer Price Index (search) for March is due Wednesday, with a rise of 0.2 percent expected for that core figure, according to economists polled by Reuters.

"Next week, what will really capture the attention of investors will be the monthly inflation reports," J.P. Morgan's Chan said.

"There is still some lingering fear of inflation, even though equity market investors have diversified their fears somewhat and are also now looking at the possibility that the economy is not doing as well."

With the health of the U.S. economy in focus, investors are likely to watch the leading economic indicators for March, which are due Thursday, Chan said.

Other economic data on tap next week includes March housing starts Tuesday. Investors will watch them to see if higher interest rates are dampening consumers' voracious appetite for real estate, strategists said.