All eyes on earnings

Oil and inflation -- market drivers for weeks -- will share the stage with earnings this week.

April 9, 2005: 11:06 PM EDT
By Alexandra Twin, CNN/Money Staff Writer


NEW YORK (CNN/Money) - Sharing is hard.

After ruling the top spot on the list of Things Most Upsetting the Market for months now, oil and inflation are going to have to make room for a new, albeit more low-key competitor next week: corporate earnings.

"The driving force for the market over coming weeks is going to be earnings -- what were the first quarter results and what is the outlook," said James Awad, chairman at Awad Asset Management. "You need strong earnings to overcome the headwinds of higher interest rates and inflation, because those aren't going away."

The week ahead brings the first big batch of quarterly earnings, following a mild showing last week. Among the companies due to report results: Apple Computer and Advanced Micro Devices are on tap for Wednesday and Citigroup and General Electric are due Friday.



"You would think that the earnings would be a positive catalyst, but in order for that to happen, we really need to see better than expected results," said Barry Ritholtz, market strategist at Maxim Group. "We need to see upside surprises beyond the areas we already know are working, like energy, mining and coal."

But strong earnings alone won't be sufficient to lift the market out of its funk next week, analysts say. It'll need a retreat in oil prices, and nothing too inflationary to surface in the heavy spate of economic news that is on tap.

Of oil and earnings
Worries about rising oil prices -- which peaked at $58.28 last week, an all-time current contract trading high -- and interest rates, have left the market jittery and rangebound for the first three months of 2005.

Stocks managed to rebound for most of last week, bouncing in response to retreating oil prices. But Friday brought discouraging pre-earnings announcements and a downgrade for Dow 30 stock General Motors, and stocks went right back down.

"With the fed continuing to raise rates and energy prices at very high levels, its hard to see the markets making much headway," said Michael Sheldon, chief market strategist at Spencer Clarke, noting that investors have "certainly been guy shy about putting new money to work."

"However, if we get a sustainable decline in oil prices and some good news from companies and CEOs," he added, "we could see a slight rebound over the next few weeks."

Beyond that, it gets challenging again, the analysts say. Longer-term, they expect oil prices to rise again, due to the growing global demand and worries about insufficient supply. And interest rates are set to continue rising.

"I think the stock bounce we've seen has run out of steam," Ritholtz added. "I'm looking for us to sell off into the summer, and maybe after that, we'll be able to see a decent enough bounce to sustain us."

Key events in the week ahead

Tuesday's February read on the trade deficit is expected to show a widening to $59.0 billion in the month from a previous read of $58.3 billion, according to Briefing.com estimates.


Tuesday also brings the release of the minutes from the last Federal Reserve policy-setting meeting, in which the central bankers opted to boost rates by a quarter-percentage point to 2.75 percent.


Retail sales reports are due Wednesday. Sales are expected to have risen 0.7 percent in March after rising 0.5 percent in February. Sales excluding autos are expected to have risen 0.6 percent in March after rising 0.4 percent in February.


The NY Empire State index, a measure of manufacturing in the New York area, is expected to have fallen to 18.3 in April, from a read of 19.6 in March. The index is due to be released Friday.


The March industrial production report, also due Friday, is expected to have risen 0.3 percent, according to estimates. Capacity utilization is expected to have risen to 79.6 percent from 79.4 percent in February.


Friday also brings the preliminary read on the University of Michigan's consumer sentiment index for April. The index is expected to have fallen to 91.9 from 92.6 in March.

Key earnings in the week ahead

On Monday, Circuit City (Research) is expected to report earnings of 62 cents per share, according to First Call estimates, up from 46 cents a year ago; also Monday, Genentech (Research) is expected to report earnings of 25 cents per share, up from 19 cents a year ago.


Apple Computer (Research), which reports after the close Wednesday, is expected to have earned 23 cents per share, up from 7 cents a year ago; Advanced Micro Devices (Research) also reports its results Wednesday evening -- the chipmaker is expected to have earned 2 cents per share, down from 12 cents a year ago.


PepsiCo (Research) reports results Thursday morning -- earnings are expected to come in at 51 cents per share, up from 46 cents a year ago; after the close, Sun Microsystems (Research) is expected to report breakeven results, versus an 8-cent per share loss a year ago.


On Friday, Citigroup (Research) is expected to have reported earnings of $1.02 per share, up from 98 cents a year ago; Fellow Dow stock General Electric (Research) is expected to have earned 37 cents per share, up from 32 cents a year ago.

- Retail sales reports are due Wednesday. Sales are expected to have risen 0.7 percent in March after rising 0.5 percent in February. Sales excluding autos are expected to have risen 0.6 percent in March after rising 0.4 percent in February.


- Apple Computer (Research), which reports after the close Wednesday, is expected to have earned 23 cents per share, up from 7 cents a year ago; Advanced Micro Devices (Research) also reports its results Wednesday evening -- the chipmaker is expected to have earned 2 cents per share, down from 12 cents a year ago.