Uh oh. Here come the 'profit' reports

Wall Street braces for its first big week of second-quarter results as a derailed stock market rally slouches into summer.

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By Alexandra Twin, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The spring stock market rally has lost momentum right as investors are primed to face another big hurdle: the start of the second-quarter reporting period.

A scant 6% of the S&P 500, or 31 companies, is due to report results this week. But the list includes major financials Goldman Sachs, Bank of America, Citigroup and JPMorgan Chase, along with tech leaders Google, Intel and IBM.

Currently, S&P earnings are expected to have declined 36% in the second quarter versus a year ago, according to the latest Thomson Reuters estimates. That means that barring some massive surprises, the S&P 500 is on track to post its eighth straight quarter of weaker profits, the longest streak since Thomson began tracking results in 1998.

Last quarter, analysts and corporations alike ratcheted down forecasts, setting up a period in which a greater percentage of companies than usual beat forecasts. But this quarter could be different. Fewer companies have been cutting forecasts and analysts haven't budged as much either, giving corporations less of an opportunity to defy expectations.

"The question is whether we'll see a similar surprise factor this time," said John Butters, senior research analyst at Thomson Reuters. "If companies haven't cut and analysts haven't cut, can results beat forecasts?"

One positive sign, he said: pre-announcements have skewed much more positive than negative.

Not as bad is no longer enough: Stocks rallied for three months, with the S&P 500 gaining 40% between March 9 and June 12, as investors breathed a sigh of relief that some economic reports indicated the pace of the recession was slowing.

But since then, stocks have slid, with the S&P 500 losing 7% and closing lower for four weeks straight as bets that the economy is stabilizing gave way to worries that the market got ahead of itself.

"After one of the most explosive three month rallies in a generation, the economy needs to step up and show it is indeed bottoming," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"Should earnings season disappoint in any way, we could be due for a move back down near the March lows," he added.

Alcoa (AA, Fortune 500) got the earnings ball rolling last week, reporting a smaller-than-expected loss, but a loss nonetheless. Shares of the aluminum maker initially surged, but soon sold off, ending the week lower as investors opted not to reward results that were merely "less bad" rather than good.

Materials are on track to see the worst quarter of any sector, Butters said. Materials are expected to post a 78% drop in profits versus a year ago, with steel and chemicals hit the hardest.

Energy is expected to see a year-over-year profit decline of 64%, reflecting the pullback in global commodity prices.

Financials are on track to post declines of 55% versus a year ago, due largely to expectations of weaker results from some of the major companies up at bat next week.

One "bright spot" is health care, Butters said, with the sector expected to see profits drop just 2% versus a year ago. That drop is the smallest of any of the S&P 500's ten economic sectors. And if a few companies should top forecasts, healthcare earnings could even eke out a profit versus a year ago.

Results

Monday: Broker Charles Schwab (SCHW, Fortune 500), rail-freight company CSX (CSX, Fortune 500) and chipmaker Novellus Systems (NVLS) are all on the calendar, but the companies' results don't usually impact the broad market.

Tuesday: Before the start of trading, Goldman Sachs (GS, Fortune 500) is expected to report a profit of $3.48 per share, according to a consensus of analysts surveyed by Thomson Reuters. In the previous quarter - the first period Goldman reported as a bank-holding company - the company reported earnings of $3.39 per share. Dow component Johnson & Johnson (JNJ, Fortune 500) is expected to report a profit of $1.11 per share versus $1.18 per share a year ago.

Intel (INTC, Fortune 500) reports after the close. The chipmaker is expected to have earned 7 cents per share, versus 28 cents a year earlier.

Wednesday: Airline AMR (AMR, Fortune 500) and chipmaker Xilinx (XLNX) are on the docket, but neither typically influence the direction of trading.

Thursday: JPMorgan Chase (JPM, Fortune 500) is expected to report a profit of 4 cents per share versus 54 cents a year ago.

After the close, Google (GOOG, Fortune 500) is expected to report a profit of $5.05 per share versus $4.63 a year ago. IBM (IBM, Fortune 500), a Dow component, is expected to say it earned $2.02 per share versus $1.98 a year ago.

Friday: Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) report results before the bell. Dow stock BofA is expected to have earned 24 cents versus 72 cents a year ago. Citigroup is expected to have lost 26 cents per share after losing 49 cents a year ago.

General Electric (GE, Fortune 500) also releases results in the morning. The Dow component is expected to have earned 23 cents per share versus 54 cents a year ago.

Economy

Monday: The June Treasury budget is due in the afternoon, although it's not usually a market mover.

Tuesday: June retail sales are expected to have risen 0.5%, according to a consensus of economists surveyed by Briefing.com. That would match May sales, which the Commerce Department said bumped 0.5% higher.

Retail sales including volatile autos are also expected to have edged up 0.5% in June, after rising the same amount in May. Sales excluding food and energy

The producer price index (PPI), a measure of wholesale inflation, is expected to have jumped 0.8% after rising 0.2% in May. So-called core PPI, which strips out volatile food and energy prices, is expected to have risen 0.1% after falling 0.1%. The Labor Department report is due before the start of trading.

The May business inventories report is also due in the morning although it doesn't tend to be a market mover.

Wednesday: The consumer price index (CPI), which measures consumer inflation, is expected to have risen 0.6% in June after gaining 0.1% in May. So-called core CPI, which strips out volatile food and energy prices, is expected to have edged up 0.1% after carving out a slim 0.1% gain in May. The Labor Department report is due in the morning.

Also due Wednesday morning: the Empire manufacturing survey, a regional read on manufacturing; reports on industrial production and capacity utilization; and the government's weekly oil inventories report. In the afternoon, the minutes from the last Federal Reserve policy meeting are due.

Thursday: The Philadelphia Fed index, a regional reading on manufacturing, is expected to have fallen to a negative 5 in July from a negative 2.2 in June. Any reading that is negative shows weakness in the sector.

Also due in the morning: RealtyTrac's report on foreclosure filings in the first half of the year and the weekly jobless claims report from the Labor Department.

Friday: June housing starts are due in the morning from the Census Bureau. Starts are expected to have dipped to a 530,000 unit annual rate from a 532,000 unit annual rate in May.

Building permits, a measure of builder confidence, is expected to have risen to a 523,000 unit annual rate in June from a 518,000 unit annual rate in May. To top of page

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