Earnings to Take Center Stage Amid Rally

NEW YORK – The nascent rally in U.S. stocks could find nourishment in the taste of corporate earnings reports trickling forth on Monday and Tuesday.

Dow component Alcoa Inc. (MO), the world's largest aluminum producer, is set to post its quarterly earnings Monday, while Supervalu Inc. (SVU), one of the nation's largest food wholesalers, is due to report the following day.

Earnings for companies in the Standard & Poor's 500 Index are expected to have risen 13.9 percent from a year ago, according to Reuters Estimates.

But with key inflation data also on tap and a handful of Fed officials lined up for speaking engagements, investors could tread with some degree of caution.

Friday the major stock indexes registered their fourth straight day of gains, capping a strong start to 2006, which saw the tech-laden Nasdaq composite index breaking above the 2,300 level for the first time since May 2001.

For the week, the Dow Jones industrial average rose 2.25 percent, S&P gained 2.97 percent and Nasdaq rose 4.55 percent.

Among factors that have fueled the strong 2006 start is the growing hope that the U.S. Federal Reserve is poised to wrap up its 18-month campaign of interest rate hikes.

Also Friday a government report showing lower-than-expected December job growth fed optimism about the U.S. rates outlook, and brightened prospects for even more gains ahead as investors emerge from a lackluster 2005, market analysts said.

For the blue-chip Dow Jones industrial average, investors would also be keeping an eye out for a possible break through the 11,000 level. The last time the Dow hit 11,000 was June 13, 2001.

"There is a seasonality bias to the upside," said Andre Bakhos, president Princeton Financial Group in Princeton, New Jersey.

But with earnings in the spotlight next week, "if, in any way, corporate earnings disappoint, that could take away this new year's early winning streak," he added.

"A lot of investors are going to be looking for the effect of higher energy costs on profits because crude has quietly crept up above $60 a barrel," he said.

U.S. crude for February delivery shot up nearly $1.50 to end above $64 a barrel, partly on worries about supplies and political developments from Israel, where Prime Minister Ariel Sharon suffered a life-threatening stroke.

"I think we'll have a positive week," said Peter Cardillo, chief market analyst and chief strategist at SW Bach and Co.

"Generally, we are going to see earnings OK and the market would respond to good earnings, and more so to what the companies say about their outlook," he added.

On the economic data front, investors face the release of November trade data Thursday, and the following day the December producer price index and monthly retail sales.

Economists polled by Reuters expect the PPI to show prices at the factory gate to have risen by 0.2 percent in December following a drop of 0.7 percent in November.

Excluding the volatile food and energy prices, economists also expect a 0.2 percent rise versus a gain of 0.1 percent in the prior month.

"Next week's retail sales numbers and inflation numbers are going to be some key statistics to give us a little bit more input into where the Fed stands," said Barry Hyman, equity market strategist at Ehrenkrantz, King, Nussbaum.

Fed officials scheduled to give speeches on Monday include: President of Federal Reserve Bank of Kansas City Tom Hoenig, who is to address a group of Kansas City business executives, and Federal Reserve Bank of Atlanta President Jack Guynn, who is speak about the economic outlook

On Wednesday, Federal Reserve Bank of New York President Timothy Geithner speaks on "Some Perspectives on U.S. Monetary Policy" at a luncheon in New York, while on Friday Federal Reserve Bank of Dallas President Richard Fisher also addresses a luncheon.