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THE WEEK AHEAD

Wall Street will be looking at earnings reports for signs of economic improvement

If this week's quarterly announcements -- particularly from the nation's top banks -- are good, the Dow could well pass 10,000. But if not, analysts don't expect stocks to plunge.

October 12, 2009|Associated Press

With earnings reports arriving in earnest this week, investors are likely to get a boost in optimism or an unpleasant surprise.

The stock market's focus this week will be companies' third-quarter earnings announcements and forecasts for the coming quarters. A surprisingly good profit report from aluminum maker Alcoa Inc. last week helped lift investors' expectations for the results being released this week, including reports from some of the nation's biggest banks.

"Financial institutions are what brought the markets to their knees," said Eric Thorne, senior vice president of Bryn Mawr Trust Wealth Management, referring to the financial industry crisis that began with the collapse of Lehman Bros. Holdings Inc. a year ago. "I think it's very important to see how far they've come in the last few months."

JPMorgan Chase & Co. issues its results Wednesday, followed by Goldman Sachs Group Inc., Citigroup Inc. and Bank of America Corp.

In all the corporate reports during the next three weeks, investors will be looking for signs of improvement in the economy. From the banks, investors are hoping to see some sign that consumer loan defaults, including mortgages, are starting to level off. They're also concerned that banks are now having problems with commercial real estate loans as well.

Other companies reporting next week include Google Inc., Southwest Airlines Co., computer chip maker Intel Corp., computer maker IBM Corp., industrial and financial conglomerate General Electric Co., and Johnson & Johnson, the world's biggest healthcare company.

If the news this week is good, the Dow could well pass 10,000 for the first time in a year. The Dow closed Friday at 9,864.94, leaving it less than 136 points from returning to five digits.

But even if the week's news isn't up to expectations, many people don't expect the reports to send stocks plunging, said Joe Heider, president of Dawson Wealth Management.

"If those bank earnings reports disappoint, however, you could see a small pullback of 3% to 5%," he said.

Last week, investors cheered signs that the economy was healing, including the first gain in retail sales in more than a year. The major stock indexes rose 4% for the week, ending a two-week slide and giving them their best run since July.

This week's economic data should also provide more insight. Chief among the reports is the Federal Reserve's minutes from its meeting in late September. The minutes being released Wednesday may give more clues about the Fed's plans for pulling back on its stimulus measures, including near-zero interest rates.

A surprise interest rate hike by Australia's central bank last week was seen as a vote of confidence in the global economy, and that helped boost stocks. Both the European Central Bank and the Bank of England left their interest rates unchanged, still needing to help their economies recover.

"The economy is very fragile, not only the U.S. economy but the world economy," said Benny Lorenzo, chief executive of Kaufman Bros., a boutique investment banking and advisory firm. "I don't see any interest rate increases this year. We have to start seeing the economy really stop shedding jobs and get much better footing."

Unemployment, which sits at 9.8% and is believed to be heading to 10%, is considered one of the U.S. economy's biggest obstacles.

In addition to the Fed minutes, investors on Wednesday will get reports from the Commerce Department, as it releases data concerning retail sales for September and business inventories for August.

On Thursday, the Labor Department is to release consumer price index data for September, and a preliminary reading on consumer sentiment in October from the University of Michigan is to be issued Friday.

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At a glance

TODAY

Bond markets closed in observance of Columbus Day.

TUESDAY

Treasury Department releases federal budget update for September and fiscal year 2009.

Federal Reserve Board releases minutes from the Federal Open Market Committee meeting on Sept. 22-23.

Quarterly earnings reports expected from Intel, CSX and Johnson & Johnson.

WEDNESDAY

Commerce Department releases report on retail sales for September and business inventory data for August.

Senate Banking, Housing and Urban Affairs Committee holds hearing on the banking industry.

House Oversight and Government Reform Committee holds hearing on bonuses paid by American International Group.

Quarterly earnings reports expected from Abbott Laboratories and JPMorgan Chase.

THURSDAY

Labor Department releases consumer price index for September and weekly jobless claims.

Freddie Mac releases report on weekly mortgage rates.

Senate Health, Education, Labor and Pensions Committee holds hearing on equal healthcare for equal premiums, focusing on women.

Quarterly earnings reports expected from Advanced Micro Devices, Google, McClatchy, Safeway, Baxter International, Citigroup, Goldman Sachs Group, Harley-Davidson and Southwest Airlines.

FRIDAY

State Employment Development Department releases California employment and joblessness data for August.

Federal Reserve Board releases industrial production data for September.

Quarterly earnings reports expected from Mattel, Bank of America, General Electric and Halliburton.

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