Investors to Focus on Interest Rates, Oil

NEW YORK – Friday's stock market retreat could spill over into next week as bears concentrate on interest rates and oil.

Still, earnings strength from companies like Alcoa Inc. (AA) could kick the market higher from time to time.

Stocks fell Friday as a stronger-than-expected jobs report suggested more interest-rate increases ahead, overshadowing hopes for hefty corporate profits.

"The overriding influence in markets for the next period will be tied to economic information, interest rates and oil prices," said Edgar Peters, the chief investment officer and macro strategist with PanAgora Asset Management in Boston. "The macro environment will become more and more important, going forward."

Alcoa, the world's biggest aluminum producer, kicks off the first-quarter earnings season Monday afternoon with what are expected to be sharply improved net profits and stronger revenues over the year-ago period, according to analyst estimates. Alcoa is the first of the Dow industrials to report quarterly earnings.

Credit Suisse earlier this week raised its estimates and price targets for several aluminum companies, including Alcoa, saying it expects metal prices to climb.

After Alcoa, conglomerate General Electric Co. will report quarterly results on Thursday before the market opens.

GE results are widely watched. Not only is GE a Dow component like Alcoa, but it is so diversified that many investors view it as a proxy for the U.S. economy.

"Next week, earnings numbers will probably be a positive for the market. The overriding negative, though, is going to be the outlook for interest rates," said Joe Liro, economist and market strategist at Stone & McCarthy Research Associates.

The coming week will be cut short by a day. U.S. financial markets will be closed Friday for the Good Friday holiday.

Get Your Motor Running

Earnings of S&P 500 companies in the first quarter are projected to rise about 11 percent over the same period a year ago. Companies in the energy and health-care sectors are expected to show the largest year-over-year earnings gains — 48 percent and 19 percent, respectively.

"I think earnings will be good this quarter. The pre-announcement season was very innocuous," said Jon Brorson, managing director of growth equities at Neuberger Berman in Chicago.

Significant corporate news next week includes the quarterly earnings report from biotech company Genentech Inc. after the close Tuesday and results for motorcycle manufacturer Harley-Davidson Inc. on Wednesday morning.

Retail Sales and Trade Gap on Tap

Investors will get a better sense of U.S. consumption patterns next week, as the government releases data on both trade and retail sales. The trade deficit report will be released Wednesday, while retail sales are due Thursday.

Retail performance is likely to become increasingly important for the Federal Reserve as it looks to gauge the extent of a housing-led slowdown on consumer spending.

A 0.5 percent gain in March sales is forecast by economists polled by Reuters, following a 1.4 percent decline in February. Sales excluding cars also were expected to rise 0.4 percent following the previous month's 0.6 percent drop.

Meanwhile, the U.S. international trade deficit was expected to ease off a bit to $67.50 billion in February after hitting a fresh record of $68.51 billion in January.

That should create some drag on first-quarter gross domestic product but not enough to derail what most economists believe was solid growth in the quarter.

The University of Michigan will give a preliminary look at April consumer sentiment index on Thursday. The index is likely to rise to 89.0 in April from 88.9 in March, the Reuters poll showed.

Oil Still a Worry

U.S. crude oil prices — which have weighed on stocks as investors worry about the effects of inflation on corporate profits — took their direction from a surprisingly large drop in gasoline inventories this week, driving oil and related products higher for the week. In New York, crude oil futures touched a two-month high this week.

"Oil prices have not been a positive for the equity market with the potential for rising inflation," said Anthony Chan, senior economist at JPMorgan Asset Management.

At Friday's close, U.S. crude oil for May delivery settled on the New York Mercantile Exchange at $67.39 a barrel — up 1.14 percent for the week. And it's less than $4 below the record U.S. crude futures price of $70.85 a barrel, which was set after Hurricane Katrina hit New Orleans.

For the week, the major stock indexes ended mixed. The Dow Jones industrial average gained 0.1 percent and the Standard & Poor's 500 Index added 0.05 percent, while the Nasdaq Composite Index inched down 0.03 percent.