Wall St. to Focus on Oil, Earnings, GDP

NEW YORK – High energy costs and the possibility of more negative earnings may curb investors' appetite for stocks next week, while the government is likely to report the economy slowed in the second quarter.

Record oil prices helped in part to slacken the pace of the U.S. economic expansion in the second quarter. Companies such as Kimberly-Clark Corp. (KMB), the largest U.S. maker of disposable diapers, felt the pinch. On Friday, Kimberly-Clark posted a drop in second-quarter profit as higher oil, resin and marketing costs outweighed gains in sales, and said it plans to cut about 10 percent of its work force, or as many as 6,000 jobs.

In the coming week, the government on Friday is likely to report the U.S. economy expanded at a 3.4 percent annual rate in the three months ending June 30, compared with growth of 3.8 percent in the first quarter, according to a Reuters poll of economists.

"Higher oil prices had an impact in the second quarter and although we still have many companies yet to report their earnings next week, investors should not expect very compelling results," said Jay Bryson, a global economist at Wachovia Corp. in Charlotte, N.C.

Still, about half the companies in the Standard & Poor's 500 (search) have reported for the last quarter, with a majority coming in better than expected. S&P currently projects profits for the quarter will grow 10.5 percent, higher than initial projections.

For the week, stocks rose. The blue-chip Dow Jones industrial average (search) gained 0.1 percent for the week, while the broad Standard & Poor's 500 index rose 0.5 percent, and the tech-laced Nasdaq Composite Index (search) advanced 1 percent. On Wednesday, both the S&P 500 and the Nasdaq reached fresh four-year highs.

Crude oil costs jumped 39 percent last quarter from a year earlier and touched an all-time high of more than $62 per barrel on the New York Mercantile Exchange (search) as recently as July 7. On Friday, U.S. crude futures for September delivery rose $1.52 to settle at $58.65 a barrel on NYMEX.

Energy companies reporting earnings next week, such as Exxon Mobil Corp. (XOM) and ConocoPhillips (COP), may benefit from the increase in oil prices.

"Not every sector got hurt by the increase in oil," Bryson said. "Consumer expenditures remained high, auto companies got a boost from all the promotions, and of course, the energy companies generated a lot of revenue."

Still, some fund managers expect the slower growth pace, combined with higher benchmark interest rates, to diminish demand for shares in the financial and credit-lending sectors , such as American Express Co. (AXP) and Countrywide Financial Corp. (CFC).

"Home lending institutions and the ones devoted to consumer credit are the ones that are going to feel the biggest impact from higher interest rates," said Michael Mullaney, who manages $10 billion in stocks and bonds at Fiduciary Trust Co. in Boston. "I'm being cautious about those types of stocks in my portfolio."

Mullaney said he holds less financial companies in his portfolios than the amount recommended in most benchmarks.

Countrywide, the largest U.S. mortgage lender, is scheduled to report second-quarter earnings next Tuesday. The company said on July 14 its second-quarter earnings may not meet investor expectations. American Express' results are due Monday.

The Federal Reserve (search) has raised the fed funds target rate nine times since June 2004 to 3.25 percent from a four-decade low of 1 percent The Standard & Poor's 500 index has gained more than 8 percent since the Fed started to rise interest rates a little more than a year ago.

Earnings from some of the most widely held companies will be part of next week's flurry of corporate results. Among those on tap: Verizon Communications Inc. (VZ), the largest U.S. telecommunications company and one of the 30 stocks in the Dow; DuPont Co. (DD), one of the biggest U.S. chemical producers and Dow component, and Starbucks Corp. (SBUX), the coffee shop chain and one of the Nasdaq's best-known stocks.

Economic data releases next week include a report on existing home sales on Monday, consumer confidence on Tuesday, and durable goods orders and new home sales on Wednesday.

Investors also will be looking to the Fed's report on regional economic conditions, known as the Beige Book (search), due Wednesday.

Rounding out the data menu will be two more reports Friday: the University of Michigan's (search) final reading for July consumer sentiment and the Chicago Purchasing Managers' Index (search), a gauge of business activity in the U.S. Midwest.