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THE WEEK AHEAD

Wall Street awaits earnings reports that could determine rally's direction

A stock market slump in response to disappointing data released over the last two weeks is stirring concern that investors have been too quick to bet on an economic recovery.

October 05, 2009|Associated Press

The stock market's bulls are slowing their charge, and upcoming earnings reports will determine whether they keep going forward or just stop.

A two-week slump in response to disappointing economic numbers has investors asking whether the market's powerful rally is fading on what would be the start of its eighth month.

This year's rally has lifted major stock indexes more than 50% from 12-year lows on March 9 and pumped new life into beaten-down investment accounts.

But the economic reports of the last two weeks are stirring concern that investors have been too quick to bet on a recovery. The government said Friday that employers cut more jobs in September than in August.

Other recent reports on factory orders, the mood of consumers and other barometers have brought reminders of the economy's troubles. The Dow Jones industrial average is down 3.4% in two weeks.

No one expected a seamless recovery, but the string of lackluster data has come as investors have little else to go on.

The third-quarter reports could give investors a better sense of whether companies managed to bring in more revenue to produce earnings growth or whether they again resorted to steep cost-cutting to boost their bottom lines as with the April-to-June period.

Aluminum producer Alcoa Inc., PepsiCo Inc. and Marriott International Inc. are slated to report during the week as is Yum Brands Inc., the parent of the Pizza Hut, Taco Bell and KFC fast-food chains.

Some analysts are questioning whether the latest lull in stocks is similar to the 7% slide the market endured from mid-June to mid-July before companies reported earnings that beat expectations.

"The market sold off into earnings season last quarter, then we had a big head of steam," said Stuart Schweitzer, global markets strategist at J.P. Morgan's Private Bank in New York.

He said companies were still relying on cost-cutting, a point underscored by the Labor Department's report Friday that employers cut 263,000 jobs last month, compared with 201,000 in August.

Investors dumped stocks ahead of the report amid worries that the swelling ranks of the unemployed would make it harder for the economy to strengthen. Schweitzer noted that the cuts, though painful, might still give stocks a short-term boost by allowing companies to post stronger profits.

But he cautioned that the market's rally would start to unravel if job losses continued.

Earnings are key but some analysts think the market will go higher because so many investors have missed the rally that they'll buy into the dips.

The Standard & Poor's 500 index is up 51.4% since March even after sliding 3.9% from its recent closing high.

Beyond earnings, investors will have a light economic calendar this week. The Institute for Supply Management's service index, which covers businesses including hospitals, retailers and financial services firms, is expected today. The service index has fallen for the last 11 months.

Reports are due later in the week on wholesale inventories, consumer credit and the nation's trade balance.

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(BEGIN TEXT OF INFOBOX)

MONDAY, Oct. 5

At a glance

TODAY

Institute for Supply Management releases its service sector index for September.

TUESDAY

Energy Information Administration releases its winter fuels outlook.

Quarterly earnings report due from Yum Brands.

WEDNESDAY

Federal Reserve releases consumer credit data for August.

Quarterly earning reports due from Alcoa, Costco Wholesale and Monsanto.

THURSDAY

Major retailers report September sales results.

Labor Department releases weekly jobless claims data.

Commerce Department releases wholesale trade inventories for August.

Freddie Mac releases weekly mortgage rates.

Quarterly earnings reports due from Marriott International and PepsiCo.

FRIDAY

Commerce Department releases international trade data for August.

Labor Department releases job openings and labor turnover survey for August.

-- Associated Press

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