Tense week for Wall Street

After the worst week for the Dow in two years, investors wonder whether the selling is over.

April 17, 2005: 11:01 PM EDT


NEW YORK (Reuters) - Earnings from big companies like Intel Corp. and Pfizer Inc., as well as key inflation reports, will help determine whether stocks will take another beating or bounce back this week.
Monday kicks off one of the heaviest weeks of the quarterly earnings season. Some of the other companies slated to report include General Motors Corp. (Research) and Ford Motor Co. (Research), Internet companies eBay Inc. (Research) and Yahoo Inc. (Research), financial heavyweight Merrill Lynch & Co. (Research) and Coca-Cola Co. (Research)

"Earnings are starting to dominate the market," Rick Meckler, president of investment firm LibertyView Capital Management, said on Friday. "The bigger names are going to set the tone for their sectors."

Will a slowdown in earnings growth fuel more stock selling? Click here for more.

Last week, the Dow Jones industrial average, the world's most widely watched stock market gauge, suffered its worst weekly decline since March 2003 -- down 3.6 percent. The broad Standard & Poor's 500 Index lost 3.3 percent, and the tech-laced Nasdaq Composite Index, down 4.6 percent, had their biggest weekly drops since last August.

On Friday, all three stock indexes ended at new lows for the year and their lowest closes in 5 1/2 months. The sell-off was driven by disappointing results from International Business Machines Corp. (Research), released after Thursday's closing bell.

Two reports published last week by the Commerce Department proved to be a double whammy for rosier growth predictions in the world's largest economy.

First, the U.S. government said on Tuesday the trade deficit ballooned to a record in February, and then on Wednesday, retail sales for March proved much weaker than analysts had foreseen.

Those reports cast more doubt on the health of the U.S. economy, which will place added importance on the financial outlooks that companies give next week.

"Whenever you reach uncertainty about whether the economy is slowing down, guidance takes on added importance," said Anthony Chan, managing director and senior economist of J.P. Morgan Asset Management.

For more on the economic clouds gathering over Wall Street, click here.

For example, Apple Computer Inc. (Research) reported better-than-expected quarterly earnings last Wednesday. But its outlook fell short of some investors' very high expectations and helped send stocks tumbling lower the next day.

"I think (the upcoming) earnings are going to be OK -- I don't think they will knock the socks off people -- but the forecast is what gets ugly," said Greg Church, founder and chief investment officer at Church Capital Management.
Watching for inflation

Investors will scour data on consumer prices and producer prices this week for any signs of inflation, strategists said.

The Producer Price Index for March is due on Tuesday, and economists expect a 0.2 percent gain for the core figure that excludes food and energy. The Consumer Price Index for March is due on Wednesday, with a rise of 0.2 percent expected for that core figure, according to economists polled by Reuters.

"Next week, what will really capture the attention of investors will be the monthly inflation reports," J.P. Morgan's Chan said.

"There is still some lingering fear of inflation, even though equity market investors have diversified their fears somewhat and are also now looking at the possibility that the economy is not doing as well."

With the health of the U.S. economy in focus, investors are likely to watch the leading economic indicators for March, which are due on Thursday, Chan said.

Other economic data on tap this week includes March housing starts on Tuesday. Investors will watch them to see if higher interest rates are dampening consumers' voracious appetite for real estate, strategists said.