Profit Forecasts Key to Wall Street Gains

U.S. investors will wade through a torrent of profit reports next week, keeping a focus on companies' outlooks, while consumer confidence and home sales data will be watched for signs that high energy costs and rising interest rates are taking a toll.

Of the nearly 200 Standard & Poor's companies that have reported earnings so far, about 72 percent have topped Wall Street consensus estimates, compared with about 58 percent in the same period a year earlier, according to data from Reuters Estimates.

Even so, investors this quarter — wary of rising interest rates, high energy costs and a weary consumer — are focusing on company outlooks. And any sign of weakness can mean punishing losses for a stock.

"I think the good news is that the current quarter is OK, and the challenge is going to be what comes next," said Joseph Battipaglia, chief investment officer of Ryan, Beck & Co. "Companies are talking about rising costs, margin pressures and a more guarded outlook for the consumer, so they are guiding to reduced expectations, and expectations have run pretty high."

For example, Thursday, the shares of Web auctioneer eBay Inc. (EBAY) fell nearly 7 percent the day after it reported an outlook that failed to dazzle investors.

Big-name companies scheduled to report next week include the world's largest software company Microsoft Corp. (MSFT), financial services provider American Express Co. (AXP), drug maker Merck & Co. (MRK) and semiconductor company Texas Instruments Inc. (TXN).

Stock investors also will monitor the progress of powerful Hurricane Wilma, which was expected to avoid the Gulf of Mexico by heading north after hitting Mexico's Caribbean coast, according to the National Hurricane Center. Wilma looked like it would spare major oil-producing regions battered by Hurricanes Katrina and Rita, but is expected to crash into southern Florida.

"Wilma's hanging over the market here a little bit, too, and it will, obviously, for the next (few) days." said Warren Simpson, managing director at Stephens Capital Management.

At Friday's closing bell, stock indexes finished mixed for the week. The technology-laced Nasdaq Composite Index (search) gained 0.8 percent for the week, while the blue-chip Dow Jones industrial average (search) fell 0.7 percent, and the broad Standard & Poor's 500 Index slipped 0.6 percent.

Concern is mounting that rapid gains in U.S. house prices, fueled by low mortgage costs, have created bubbles in certain regions across the country. So investors will closely watch September data on existing home sales and new home sales due this week.

"We've got new home sales and existing home sales coming, so the housing market comes to the forefront next week," said Andre Bakhos, president of Princeton Financial Group, in Princeton, New Jersey. "That will be interesting, given that mortgage rates are at 15-month highs."

Data on September U.S. existing home sales from the trade group, the National Association of Realtors, is due Tuesday, while Commerce Department statistics on September new home sales are set for release Thursday.

So far this month, the Dow Jones index of home builders has fallen more than 10 percent, as fears about a housing bubble mount.

Although crude oil prices have fallen, home heating costs and gasoline bills are still steep. So the University of Michigan's final read on consumer sentiment in October will be watched for signs that energy costs are hurting sentiment about the economy. The University of Michigan's (search) consumer sentiment survey, a subscription-only report, is expected Friday.

Wall Street will get a snapshot of the American consumer's mood Tuesday, when the October consumer confidence index will be released by the Conference Board, a private economic research group based in New York.

"The consumer confidence report will be closely watched to see if higher energy prices are hurting household budgets," said Martin Yokosawa, senior portfolio manager at Oberweis Asset Management in Lisle, Illinois.

"Crude is down, but it's still much higher than it was last year, the same with natural gas," Yokosawa said. "When investors see their October statements, they're not going to be too thrilled and that's not good for November."

Other key economic data includes a report on September durable goods orders, due Thursday, and a first read on third-quarter gross domestic product, due Friday. Economists expect that total U.S. durable goods orders fell 1 percent in September, while they believe that third-quarter GDP grew at a 3.5 percent annual rate, according to a Reuters poll.