NEW YORK – Wall Street is set for a deluge of earnings this week that should keep investors focused on what corporate America says about the U.S. economic outlook as the Dow average edges closer to the 12,000 mark.
More signs of optimism could extend the stock market's rally, putting the Dow Jones industrial average above the 12,000 mark for the first time in its 110-year history.
Corporate comments that underscore the view that the U.S. economy is slowing too fast while inflation is still a concern could stall the rally, which has driven the blue-chip Dow average to record highs over the last two weeks.
"Earnings get into full force ... and I don't expect any major surprises. But I would look to see how this earnings season plays itself out," said Barry Hyman, equity market strategist at EKN Financial Services Inc. in New York.
The full earnings slate includes results from two Dow components, financial services behemoth Citigroup Inc. , and the world's dominant chip maker, Intel Corp. .
Inflation will be on Wall Street's mind, with the release this week of September data on producer and consumer prices, as well as the Fed's industrial production report.
Stocks ended last week higher, with the Dow average finishing Friday at another record high of 11,960.51, within 40 points of the historic 12,000 level.
For the three major U.S. stock indexes, Friday's close marked the third straight week of gains: The Dow was up 0.9 percent for the week, the Standard & Poor's 500 Index rose 1.2 percent and the Nasdaq Composite Index advanced 2.5 percent.
For the year so far, the Dow is up 11.6 percent, the S&P 500 is up 9.4 percent and the Nasdaq is up 6.9 percent.
Strong earnings from companies, including warehouse club Costco Wholesale Corp. (COST), have driven the market's gains. Costco's robust results last week overshadowed disappointing earnings from aluminum producer Alcoa Inc. (AA), which was the first Dow component to release its third-quarter scorecard.
The market also shrugged off worries last week about North Korea's purported nuclear test.
"The winds are at the back of the market. Investors want 12,000 and there is a chance we could hit it very soon," said Robert Lutts, chief investment officer at Cabot Money Management in Salem, Massachusetts.
AN EARNINGS 'WHO'S WHO'
Third-quarter earnings estimates for Standard & Poor's companies rose modestly last week, with Reuters Estimates projecting profit growth to increase 14.6 percent from a year earlier versus estimates of 14 percent a week earlier.
Among top companies set to report results this week are financial services companies Merrill Lynch & Co. (MER) and Bank of America Corp. (BAC) ; tech bellwethers Apple Computer Inc. , Google Inc., Yahoo! Inc. and International Business Machines Corp. , and Dow industrials Honeywell International Inc. , 3M Co.
and Caterpillar Inc..
"We're looking for strength from the financials ... and weakness from technology," said Ashwani Kaul, senior market analyst at Reuters Estimates.
But if expectations for strong earnings are already built into stock gains, weaker outlooks from companies could have a dampening effect on the market, analysts said.
"Everyone knows what the earnings are for the quarter. It's identifying what the outlook is going forward. That's the real question," said Matthew Smith, president of Smith Affiliated Capital in New York. "I think stocks are whistling past the graveyard."
PPI AND CPI ON THE AGENDA
Investors will watch this week's data for clues about the economy and the outlook for interest rates.
The Federal Reserve's policy-setting committee, which left interest rates unchanged in August and again in September after two years of rate rises, will meet on Oct. 24-25.
On Tuesday, the Producer Price Index will be released at 8:30 a.m. . The overall PPI is forecast down 0.6 percent in September, while the core PPI, excluding volatile food and energy prices, is seen up 0.2 percent, according to economists polled by Reuters. In August, overall PPI rose 0.1 percent and core PPI fell 0.4 percent.
The Fed's report on industrial production, due at 9:15 a.m. , probably will show no change in September, the Reuters poll said, versus August's 0.1 percent drop. Capacity utilization, which measures the output of U.S. factories, mines and utilities, is forecast at 82.2 percent in September, close to August's rate of 82.4 percent.
On Wednesday, the Consumer Price Index will be released at 8:30 a.m.. The overall CPI is expected to drop 0.3 percent in September, while core CPI, excluding food and energy prices, is pegged up 0.2 percent, the Reuters poll showed. August's overall and core CPI both rose 0.2 percent.
September housing starts, forecast to slow a bit, also will be released Wednesday.
FOLLOW THE MONEY
The stock market's recent surge has been tied in part to a drop of 25 percent in crude oil prices since July.
On the New York Mercantile Exchange, front-month crude oil prices are down $19.83, or 25 percent, from the record high of $78.40 a barrel struck July 14.
On Friday, NYMEX crude for November delivery rose 71 cents to settle at $58.57 a barrel. For the week, though, November crude was down 2 percent on NYMEX; on Thursday, it dropped to $57.22, the low for the year.
The gains in U.S. crude oil futures prices Friday followed news of oilfield shutdowns in Norway and signs that OPEC may meet this week to approve an output-cut agreement.
Higher oil prices, often a negative for the stock market because they raise energy costs for corporations and consumers, actually helped the major indexes advance on Friday by whetting investors' appetites for shares of major energy companies, including Exxon Mobil Corp..
Recently, though, sliding oil prices have prompted investors to buy tech stocks that were punished in June and July, and that helped drive the Nasdaq up, said David Straus, a portfolio manager with Johnston Lemon Inc. in Washington.
Joseph Battipaglia, chief investment officer of Ryan, Beck & Co. in Yardley, Pennsylvania, sees hedge funds' hand here.
"Those hedge funds that were short the market have been running for cover and those that are looking to participate need big liquidity names and some of these tech stocks offer that liquidity," Battipaglia said.
EKN Financial's Hyman said the market has "had a phenomenal run. The extent of the move since mid-July seems to indicate there's still tremendous money flow into the market. We've all learned that ... you have to not fight the tape."