Earnings Expected to Drive Stocks

Should earnings keep beating analysts' forecasts this week, they are likely to be the big prop for stocks even if economic data such as Friday's April payrolls data turns out to be a disappointment.

A heavy schedule of corporate earnings will give investors plenty of numbers and trends to watch this week with Procter & Gamble Co. reporting on Tuesday and General Motors Corp. releasing its results on Thursday.

"Corporate profits continue to surprise on the upside for the majority of companies and I believe that trend will continue," said Art Nunes, portfolio manager and market strategist for Portland, Oregon-based IMS Capital Management.

He said while earnings growth has slowed from 20 percent in previous quarters to about half that, it is much better than the expectations that it would be near 5 percent.

As for the closely watched jobs data on Friday, economists polled by Reuters have forecast an increase of 100,000 in nonfarm payrolls in April.

The expected gain would represent a slower pace of hiring from 180,000 jobs added in March.

"The focus [this] week is going to be on the job figures," said Michael Metz, chief investment strategist of Oppenheimer & Co. in New York. "A lot of people are amazed that job formation has held up as strongly as it has."

Metz said some observers believe that the payrolls figures may be now at the point of delivering a disappointment.

GDP Surprises

Investors who study economic trends were surprised last week by the report that the U.S. economy grew at an annual rate of only 1.3 percent in the first quarter of 2007, down from a pace of 2.5 percent in the fourth quarter of 2006.

"We were encouraged by how quickly the market shrugged off the disappointing first-quarter preliminary GDP report." said Fred Dickson, market strategist and director of retail research at D.A. Davidson & Co. in Lake Oswego, Oregon.

The Dow industrials, which climbed above 13,000 for the first time on Wednesday, remained above that level, closing on Friday at another record and drawing strength from better-than-expected corporate earnings.

For the week, the Dow Jones industrial average rose 1.23 percent, the Standard & Poor's 500 index gained 0.66 percent, and the Nasdaq Composite Index advanced 1.22 percent.

It's Raining Numbers

Aside from a steady stream of economic data, this week's potential market movers are likely to come from the earnings arena. The corporate earnings calendar includes such diverse companies as Avon Products Inc , CBS Corp. and forest products company Weyerhaeuser Co. .

In the week ending Friday, 177 S&P 500 companies reported earnings, according to Reuters Estimates. Of the companies that reported, 123 beat consensus earnings per share, 22 were in line with expectations and 32 missed estimates.

The payrolls data is just one report on a crowded calendar of economic releases. On Thursday, a report on business productivity is due. Growth in productivity is expected to slow to an annual pace of 1.0 percent in the first quarter of 2007 from a rate of 1.6 percent in the fourth quarter of 2006. The report includes data on unit labor costs, which are influenced by productivity. Higher labor costs feed inflation, which can deter the Fed from cutting interest rates.

"All of these indicators are like looking in a rear view mirror," Nunes said. "I suspect they are going to be mixed, with a bias showing a slowdown in the economy."

Nunes believes that after a sustained advance, the stock market is due for a pause but not a major pullback.

"Any sell-off that we have as a result of these indicators disappointing people will be short-lived," he said.

Other reports coming during the week include personal income and consumption on Monday. Also on Monday, the National Association of Purchasing Management-Chicago reports on Midwest business conditions. The group's report for March had the index at an astonishingly strong 61.7. The consensus forecast is for an April reading of 54.0.

Tuesday brings a report on the manufacturing part of the economy from the Institute for Supply Management. Throughout the day, automakers will be reporting on U.S. car and truck sales in April.

On Wednesday, data is due on factory orders as well as a revision to durable goods orders.

Thursday brings the ISM report on the services sector of the U.S. economy.