NEW YORK – Stock investors will take a break from parsing Fed chatter and prognosticating interest-rate moves next week, turning their attention instead to the nitty gritty of corporate earnings on Monday when Alcoa Inc. (AA) kicks off the earnings season.
Hopes are high that another solid quarter of earnings growth will give stocks a reason to bounce back after uncertainty about rates and the economy sent the market on a six-week tumble beginning in mid-May.
But a profit warning from Dow component 3M Co. (MMM) on Friday put a damper on the earnings optimism. New York Stock Exchange specialist LaBranche & Co. and power management company O2Micro International Ltd. both warned of second-quarter losses late Thursday.
"Earnings growth is going to slow," said Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, Calif., who added that the latest corporate and economic news was "reinforcing that. When earnings get into full swing, it could get pretty ugly. The answer is to sell on the strength."
Results from Dow component Alcoa, the world's largest aluminum producer, Monday will be followed by earnings from the Pepsi Bottling Group Inc. (PBG) Tuesday, while quarterly scorecards from hotel chain Marriott International Inc. (MAR) and food and beverage maker PepsiCo Inc. (PEP) will be released Thursday.
Earnings from industrial conglomerate General Electric Co. , another Dow component, will be reported Friday.
"GE and Pepsico will probably be the most closely watched, in addition to Alcoa, as they are perceived to be market trendsetters." said Fred Dickson, market strategist and director of retail research at D.A. Davidson & Co. in Lake Oswego, Oregon.
Alcoa's earnings will be released after the closing bell on Monday.
"With Pepsico, we'll get a gauge of consumer spending," Dickson said. "I'll be looking at how their Frito-Lay division is doing. We'll see if people took time to hop out of their cars to buy the chips and other goodies, or if they felt constrained by the shock factor at the pump."
Still a Chance for Double-Digit Growth
Newspaper publishers Gannett Co. Inc. and Tribune Co. report earnings Wednesday and Thursday, respectively.
In the financial sector, commercial banks M&T Bank Corp.
and Regions Financial Corp. are set to announce quarterly results Wednesday and Friday, respectively.
Earnings are forecast to rise 9.7 percent in the second quarter, according to a poll by Reuters Estimates. The forecast includes the actual results of the nearly 7 percent of S&P 500 companies that have already released their earnings. Once all companies have reported, growth should reach 12 percent, which would represent the 16th straight quarter of double-digit gains.
"One thing we need to realize is that earnings are now at an all-time record relative to GDP," said Gary Shilling, president of A. Gary Shilling & Co., an investment research firm in Springfield, New Jersey. "What do you do for an encore?"
On Friday, the Dow Jones industrial average slid 134.63 points, or 1.20 percent, to end at 11,090.67. The Standard & Poor's 500 Index fell 8.60 points, or 0.67 percent, to finish at 1,265.48. The Nasdaq Composite Index
dropped 25.03 points, or 1.16 percent, to close at 2,130.06.
For the week, the Dow average fell 0.53 percent, while the S&P 500 shed 0.37 percent, and the Nasdaq lost 1.94 percent.
Shoppers in the Spotlight
While earnings will take center stage, economic indicators may also steer the market somewhat. With weekly chain-store sales and consumer confidence Tuesday as well as retail sales and consumer sentiment Friday, investors will be able to take the pulse of U.S. shoppers.
Import and export prices, set for release Friday morning, will shed some light on the pace of inflation.
The June nonfarm payroll report showed average hourly earnings rose and stirred worries about a pickup in inflation, while fewer-than-expected jobs were created last month. The softer jobs growth raised concerns about an economic slowdown.
Oil prices also will remain on investors' minds, after U.S. crude futures for August delivery hit a record price of $75.78 in overnight electronic trading this week.
"We're going to see heavier activity next week," Dickson said. "This week was a semi-vacation week for Wall Street," he added, referring to the financial markets' closure Tuesday, July 4th, for the U.S. Independence Day holiday.
The conflicting signals from the June jobs report threw Wall Street a curve ball at the end of a holiday-shortened week, he noted.
"Wall Street also will be bracing for some more earnings warnings, comparable to what we got from 3M."