Wall Street to Focus on Earnings, Greenspan

Bulls will scan a blitz of profit reports from U.S. companies like IBM next week for reasons to push stocks past recent peaks, while testimony on the economy from Federal Reserve Chairman Alan Greenspan (search) will also merit scrutiny from investors.

Better-than-expected earnings reports from companies including Apple Computer Inc. (AAPL) and Genentech Inc. (DNA) helped push the Standard and Poor's 500 index to close at 4-year highs this week, while the Nasdaq Composite Index closed at a new high for 2005 and the Russell 2000 small-cap index hit a lifetime high.

More positive profit reports will be needed next week to build on that momentum.

"We're going to be watching how companies like IBM and Citigroup come in. The market leaders will set the tone," Frederic Dickson, chief market strategist at D.A. Davidson & Co., said. "I think investors next week are hoping for dramatically lifted guidance. People at this point are looking to react to positive news."

For the week, stocks rose. The blue-chip Dow Jones industrial average gained 1.8 percent, while the broad S&P 500 index advanced 1.3 percent, and the tech-laced Nasdaq climbed 2.1 percent.

Companies that are due to report include tech bellwethers International Business Machines Corp. (IBM) and Intel Corp. (INTC), manufacturers 3M Co. (MMM) and Caterpillar Inc. (CAT), automaker Ford Motor Co. (F) and General Motors Corp. (GM) as well as Internet search engine Google Inc. (GOOG) and fast-food chain McDonald's Corp. (MCD).

Greenspan gives his semi-annual testimony on the U.S. economy to Congress Wednesday and Thursday, and markets will anxiously wait for any word on the pace of future interest-rate hikes or economic growth.

"I think the key thing is that investors should be paying more attention to Greenspan," said Edward Hemmelgarn, chief investment officer of Shaker Investments. "I do believe the market will turn more positive when it feels confident that the Fed is through raising interest rates."

In the past, stocks have rallied on the notion that the Fed is near the end of its campaign to raise interest rates at a gradual pace. Since June 30, 2004, the central bank has raised its benchmark fed funds rate nine times in a row — to 3.25 percent from a historic low of 1 percent.

While Greenspan's testimony will certainly garner interest, some don't believe he will say anything that will deviate from the Fed's stated path of "measured" interest-rate hikes.

"I don't think Greenspan's going to tell Congress anything they don't know," said Dickson of D.A. Davidson. "He's not going to tell them when they are going to stop raising rates."

Still, any comments the Fed chairman makes on oil, inflation or the economy will be of interest, Dickson said.

Other economic data on tap for Thursday that may influence trading will include a report on June leading U.S. economic indicators and a regional manufacturing report from the Philadelphia Federal Reserve Bank (search). The minutes from the last meeting of the Federal Open Market Committee (search), the central bank's rate-setting body, also will be released Thursday.

Data on June U.S. housing starts and building permits are set for release Tuesday.

Any signs of a slowdown in those housing figures may be welcomed as it might help alleviate concerns about an overheated housing market, said Michael Strauss, chief economist at Wilton, Conn.-based Commonfund.

"The housing sector still looks a little bit like a runaway freight train," he said. "Is there a speculative bubble in that sector? There probably is in some regions of the country."