Investors to Set Sights on Earnings

Wall Street's quarterly earnings frenzy is starting to taper off, but U.S. stock investors will still have plenty of numbers to watch next week. Several media giants as well as beverage and snack foods company PepsiCo Inc. (PEP) and forest products company Weyerhaeuser Co. (WY) are among those planning to announce results this week.

The calendar of economic indicators is a bit less crowded, too. The week kicks off Monday with a report on the service sector of the economy, the Institute for Supply Management's non-manufacturing index for January. A Reuters survey shows analysts on average expecting the index to rise to 57.0, up slightly from 56.7 in December.

Last week the ISM's manufacturing index showed an unexpected decline. But the report was somewhat overshadowed by fourth-quarter gross domestic product, which was better than expected, and the monthly payrolls data, which came in below expectations.

"People are going to look at the ISM data in the context of the manufacturing report," said Brian Gendreau, investment strategist at ING Investment Management in New York. "If the number is just up a little bit, people will breathe a sigh of relief."

But if the report confirms the weakness seen in manufacturing, the stock market could have a negative reaction, he said.

Media companies due to report earnings this week include News Corp and Walt Disney Co. Wednesday and Tribune Co. Thursday.

PepsiCo is scheduled to report Thursday. Bob Millen, a portfolio manager with Jensen Investment Management in Portland, Oregon, owns the stock and will be looking for news on how the company will use its free cash flow, whether for dividends or investing in its business.

He said any such announcements, if they are made, could be in the earnings release or in a conference call that same day.

"My guess is that corporate profits are going to end up a little more robust than people had originally thought," Millen said, referring to earnings in general.

Earnings on the Brain

With some of the major economic news out of the way, as well as last week's widely anticipated decision of the Federal Reserve not to raise interest rates, the focus on Wall Street has now shifted back to earnings.

"Now that rates appear to be on hold for the foreseeable future, the catalyst for future market direction will need to come from any kind of earnings surprises or shortfalls," said Tim Biggam, options strategist at options brokerage Man Securities in Chicago.

"We're cautiously optimistic," said Robert Lutts, president and chief investment officer of Cabot Money Management Inc. in Salem, Massachusetts. "We've been impressed that inflation appears very controlled and that the economy continues to grow, and at a quicker pace than many have expected."

This week, the Labor Department will issue a quarterly report on nonfarm productivity Wednesday. A Reuters survey has economists on average forecasting a 1.8 percent increase, while they believe that unit labor costs will rise 2.1 percent.

Productivity and labor costs are key pieces in the inflation puzzle, with higher productivity curbing inflation and unit labor costs a danger if they ratchet out of control.

Forecasts for much colder temperatures this week drove the price of U.S. crude oil for March delivery up $1.72 on Friday to settle at $59.02 a barrel on the New York Mercantile Exchange. That price, though, was still 25 percent below the NYMEX record of $78.40 hit last July. In New York trading, COMEX April gold fell almost 2 percent to $651.50.

One other element in the financial picture this week is a $38 billion auction of U.S. government debt. The quarterly refunding takes place Tuesday through Thursday.

What's Next, Dow Jones?

Still, with the Dow ending last week close to record highs, there is some question about what can fuel further gains.

"I would say watch the technology sector," said Barry Hyman, equity market strategist for EKN Financial Services Inc. in New York. He said the sector has lagged, with semiconductors in particular acting poorly.

For the week, stocks rose. The blue-chip Dow Jones industrial average gained 1.3 percent, while the Standard & Poor's 500 index climbed 1.8 percent and the Nasdaq Composite Index advanced 1.7 percent.

Right after the opening bell on Friday, the Dow hit an intraday record at 12,683.93 in response to the news of modest jobs growth and then backtracked on a mix of profit-taking and the realization that a rate cut wasn't coming soon. On Thursday, the Dow ended at a record 12,673.68.

The S&P 500 recorded its biggest weekly gain since August, after climbing to 1,449.33, its highest in about 6 1/4 years.