Earnings to Trump Jobs Data in Market Moves

Earnings reports from hundreds of U.S. companies, including some of the biggest such as Boeing Co. and Procter & Gamble Co., are likely to drive stock investors' decisions this week, barring any surprises from a mid-week Federal Reserve meeting or Friday's data on January jobs.

There is widespread agreement that there are signs of a slowdown in the robust earnings growth that has helped stocks move higher since 2002.

"I see earnings slowing a little bit," said Michael Alpert, managing director at J. & W. Seligman & Co. Inc. in New York. "I think the fourth quarter wasn't bad, but it wasn't a home run."

Alpert, who manages the $1 billion Seligman Frontier Fund, a mutual fund that invests in small-cap growth stocks, noted that some of his stocks scored large gains in the fourth quarter of 2006, anticipating good earnings reports coming out in early 2007.

In some cases, investors have been inclined to take profits after the earnings met expectations, Alpert noted.

"The growth rate of the economy and earnings is slowing and earnings are, on balance, disappointing," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.

He noted that there are fewer companies beating expectations, compared with recent quarters.

"This has not been as good of an earnings season as we're used to, and I think that just makes it very vivid to investors that this could be a tough year, that we're not going to get the kind of earnings that makes for double-digit stock market returns this year," Johnson said.

According to Reuters Estimates, fourth-quarter earnings of companies in the Standard & Poor's 500 are expected to rise 8.9 percent from a year ago. The percentage, which is based on actual numbers from companies that have reported earnings and estimates for the remainder, is down from 9.4 percent in a previous calculation.

One piece of news that had been expected during the week will not be coming. General Motors Corp. said Thursday it will delay its fourth-quarter results and restate past results because of an accounting error.

For the week, stocks fell. The blue-chip Dow Jones industrial average finished the week down 0.6 percent, while the broad Standard & Poor's 500 index ended down 0.6 percent. The Nasdaq Composite Index was down 0.7 percent for the week.

Spending, Rates and Jobs

Wall Street will get input this week on the strength of consumer spending, gross domestic product and the labor market. But some of the most important words are likely to come from the Federal Reserve's policy statement on the potential direction of interest rates, which will come on Wednesday.

The Conference Board's Consumer Confidence Index for January is due Tuesday. A Reuters survey has economists expecting the index to read 110.0, up from 109.0 in December. The December reading was up significantly from November.

"Consumer confidence is probably going to be pretty strong," said Hugh Moore, a partner in Greenville, South Carolina-based investment manager Guerite Advisors. "Oil is part of it," he said, noting the decline in crude prices.

On Friday, U.S. crude oil for March delivery settled at $55.42 a barrel, up $1.19 on the New York Mercantile Exchange. That price is up 6.6 percent from two weeks ago, reflecting a blast of cold weather in the U.S. Northeast and a rally on the proposal by President Bush to double the capacity of the U.S. emergency oil reserves.

Nevertheless, U.S. crude oil futures prices are still down 29 percent from last July's NYMEX peak at $78.40 a barrel.

The Federal Open Market Committee, the Fed's policy-setting panel, will meet Tuesday and Wednesday. The FOMC is expected to leave the key fed funds rate unchanged at 5.25 percent.

Fed watchers will study the accompanying statement on Wednesday for any clues to a shift in policy down the road. Investors who would like to see stocks have another good year after a strong 2006 are counting on an interest-rate cut at some point in 2007.

Fourth-quarter gross domestic product data will be released Wednesday morning. The consensus forecast is for an annual growth rate of 3.0 percent, the Reuters poll showed. The core PCE price index on personal consumption expenditures excluding food and energy is seen up 2.2 percent.

As for the key jobs data Friday, the consensus forecast calls for an increase of 149,000 non-farm payroll jobs in January. In December, the number was a surprising 167,000. The jobless rate is expected to remain unchanged at 4.5 percent.

Living by the Numbers

Rounding out the week's economic calendar will be several key indicators due Wednesday through Friday. The National Association of Purchasing Management-Chicago survey of business conditions — forecast at 52.0 in January after December's reading of 51.6 — will come out Wednesday.

Thursday's data includes December personal income and spending, with a monthly core PCE price index to watch, plus the weekly U.S. claims for jobless benefits. The Institute for Supply Management's January report on manufacturing — forecast at 51.9, compared with 51.4 in December — will be released Thursday. Domestic car and truck sales for January will be reported throughout the day Thursday.

On Friday, sentiment data from the Reuters/University of Michigan Surveys of Consumers will be released. The forecast calls for a final January sentiment reading of 98.0 vs. December's 91.7. Factory orders for December are also due that day; the forecast: up 1.8 percent.