Key Earnings, Data to Hit Wall Street

U.S. investors are looking for strong earnings and tame inflation figures in the week ahead to help the major stock indexes move up from their negative or flat status for the year so far.

As Hurricane Dennis (search) moves toward the Gulf of Mexico and Florida, investors hope the storm of earnings and economic data heading their way can compensate for any damage wreaked by the menace of Dennis.

Any disruptions in oil and natural gas production caused by Dennis could harm the stocks of energy companies, and the hurricane could hurt other companies, including some in the insurance, casino, cruise line, boating, retail and roofing sectors, according to a note from Susquehanna Financial Group.

Record earnings from Dow component Alcoa Inc. (AA) helped U.S. stocks end the past week with strong gains as they bounced back from a temporary slide Thursday after the bombs in London that killed more than 50 people.

For the week, the Dow Jones industrial average climbed 1.41 percent, the Standard & Poor's 500 advanced 1.46 percent, and the Nasdaq gained 2.70 percent.

Year to date, however, the Dow is still down 3.10 percent, the S&P 500 is exactly flat, and the Nasdaq is down 2.88 percent.

Next week's key economic indicators include the latest data on the U.S. international trade deficit and the federal budget Wednesday, and June's consumer price index and retail sales data Thursday.

On Friday, investors will scrutinize June's producer price index and industrial production data, May's business inventories, and a preliminary reading of the University of Michigan consumer confidence report for July.

Wall Street analysts seem divided on whether the coming week could be good for stocks or not.

"Retail sales should be strong, the trade deficit should improve and the inflation number should remain somewhat subdued," said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

"The expectation is that second-quarter earnings were 8.6 percent higher than second-quarter 2004. If I'm right, earnings reports should, like Alcoa, come in better than expected.

"The only things you worry about are the risks — higher oil prices and any decline in house prices. So, with an eye toward the risks, I think on balance the stock market will move higher."

However, among the skeptics, Commerzbank Capital Markets said in a note: "Neither June retail sales nor industrial production are likely to be especially strong."

The coming week will show whether other companies can follow Alcoa's example. It also will tell how businesses are coping with rising commodity prices. Oil prices settled close to $60 a barrel on Friday after hitting a record $62.10 earlier in the week.

Companies reporting earnings this coming week include PepsiCo Inc. (PEP) on Tuesday, Advanced Micro Devices Inc. (AMD) and Apple Computer Inc. (AAPL) on Wednesday, UnitedHealth Group Inc. (UNH) on Thursday and General Electric Co. (GE) on Friday.

Peter Boockvar, equity strategist at Miller Tabak & Co., cautioned against taking Alcoa's record earnings as a sign of things to come, saying that "people should not extrapolate that to imply earnings are going to be good."

Boockvar added that next week's corporate earnings statements will be crucial in providing companies' outlook on the economy — and how they are dealing with the cost pressures that higher commodity prices are bringing.

Anthony Chan, senior economist at JPMorgan Asset Management, said the retail sales and inflation data would be crucial.

"Financial markets are on inflation watch more so than ever because they are trying to gauge when the Federal Reserve is going to finish (raising rates) and if there is a possibility or a probability they may pause."

The Fed raised its benchmark fed funds rate by a quarter percentage point on June 30 to 3.25 percent, the ninth such move in a year, and said it expects to keep up this measured pace of policy tightening while the country's economic expansion remains firm.

Many in the financial markets are betting the Fed will keep raising rates in quarter-point steps to 3.75 percent by the end of the year. Many expect the Fed will then pause to examine the effect of its actions since it began raising rates on June 30, 2004, when the fed funds rate for overnight bank loans was at a historic low of 1.0 percent.

On the year so far, Chan said that "we are still weak. But look at last year — everyone thought the market was going to be under water and I think the market gave almost a 9 percent rate of return.

"It was back-end loaded, but it did occur," he said, "and I think we can very easily see a replay of that this year."

He pointed out that at one point this year "the market was pricing in a possible recession," adding that he believes "the market will be pleasantly surprised that we are not likely to go into a recession."