Stock market bulls are betting strong second-quarter profits will send equities even higher with the earnings reporting season in full swing this week.
Rising energy and food prices coupled with uneven retail sales are not likely to slow down investors as they test the market's limits. At the same time, the financial sector is expected to avoid major losses from the subprime sector.
After a week when the Dow Jones industrial average and Standard & Poor's 500 index reached record highs on mergers and acquisitions activity and multibillion-dollar blue-chip buyback plans, investors will eye profits, inflation data and the Federal Reserve for more signs of good news.
Earnings will be headlined by Microsoft Corp., Intel Corp., Citigroup Inc. and Bank of America Corp. among an exhaustive list of major companies.
Amid the flood of results, Federal Reserve Chairman Ben Bernanke will give two days of semiannual testimony on U.S. monetary policy before Congress.
"Earnings are not going to be a problem," said Michael Metz, chief investment strategist at Oppenheimer & Co., in New York. "The speculators are very excited. Unless it is a major surprise, the external (factors) won't matter. The markets are feeding on themselves.
"I don't think Ben Bernanke has anything new to say at the moment about inflation, and the Federal Reserve does not think the subprime problem will derail growth," Metz added.
Friday the 13th turned out to be lucky for the stock market, when the S&P 500 rose above its March 2000 record to set a lifetime high at 1,555.10 and the Dow industrials crossed 13,900 for the first time to set a lifetime high. Both the S&P 500 and the Dow closed at record highs. The Nasdaq ended at 2,707.00, a 6-1/2-year high.
For the week, the Dow rose 2.2 percent, the S&P 500 added 1.4 percent and the Nasdaq Composite Index gained 1.5 percent.
For the year, the Dow is up 11.6 percent, while the S&P 500 is up 9.5 percent and the Nasdaq is up 12.1 percent.
CPI AND HOUSING STARTS
In what will be one of the busiest weeks for corporate earnings, Wall Street also will get some fresh economic numbers to crunch: the U.S. Producer Price Index on Tuesday, followed by Wednesday's reports on the Consumer Price Index and housing starts. All of the data will be for June.
Economists surveyed by Reuters forecast a gain of 0.2 percent in both the overall PPI, a measure of wholesale prices, and core PPI, excluding food and energy prices.
CPI is expected to rise 0.1 percent in June, while core CPI is seen up 0.2 percent, the Reuters poll showed.
The Census Bureau's housing starts and building permits report for June is likely to show continued slowdowns, keeping the chance of a hike in the fed funds rate unlikely.
On Thursday, investors will scrutinize the minutes from the Federal Open Markets Committee's late June meeting for any further hints about monetary policy.
EVERYONE LOVES TECH
But most of the buzz this week will come from the torrent of profit reports. Among the quarterly results, particular confidence is expected to come from the technology sector.
"People are just in love with technology right now," said Rick Meckler, president of LibertyView Capital Management, in Jersey City, New Jersey. "We are in the midst of a replacement cycle, plus a new technology cycle, which the iPhone represents."
Intel Corp. and Yahoo! Inc. will release earnings on Tuesday. Last week, Intel forecast a strong second-quarter profit. Yahoo is expected to show a slim profit. Google Inc., which has been beating Yahoo in the Internet search business, is expected to post double-digit profit growth.
Motorola Inc. and Microsoft may dampen the mood on Thursday with the second-quarter losses seen for Motorola, and Microsoft, the world's biggest software company, likely to finish the quarter flat on flaws in the Xbox video console.
BANKS, BROKERS AND SUBPRIME
Investors may be holding their breath, however, when it comes to the financial sector to see if it regained its footing in the wake of the subprime credit markets' turmoil. This week, Standard & Poor's and rival ratings agency Moody's Investors Service downgraded billions of dollars of bonds in the increasingly shaky subprime sector.
Merrill Lynch & Co Inc. is expected to bring solid double-digit earnings growth with expanding fees from wealth-management and banking services after its acquisition of First Republic Bank. JPMorgan Chase & Co., a Dow component, will follow on Wednesday, with Bank of America, an S&P 500 stalwart, rounding out the week with its quarterly report card on Thursday.
SMOKESTACKS, BAND-AIDS AND COKE
Big industrial stocks are also likely to show profits. United Technologies Corp., industrial supplies manufacturer Honeywell International Inc. and toolmaker Danaher Corp. may deliver good tidings to Wall Street with earnings reports on Thursday.
"In my own investments, I am overweighted in industrials, like Honeywell," said Al Kugel, chief investment strategist at Atlantic Trust in Chicago. "This is a global cyclical play and a continued defense play."
Retail sales fell unexpectedly in June on the heels of a housing sector slump and due to rising food and energy prices, the Commerce Department reported on Friday.
But Kugel said blue-chip consumer staples like Coca-Cola Co. and Johnson & Johnson may have avoided the overall sluggishness.
However, the likes of $3-a-gallon gasoline and $4-a-gallon milk appear to be pushing consumers to discount stores such as Target Corp. and Wal-Mart Stores Inc.. This trend looks like it may hurt iconic motorcycle manufacturer Harley Davidson Inc., whose results are due Thursday.