Earnings goose a rally - for now
The early batch of report cards from Corporate America have revived the dormant stock market. But major companies in the week ahead could kill the optimism.
NEW YORK (CNNMoney.com) -- So far so good.
The first week of major quarterly financial results has come and gone, leaving investors more confident about the economic outlook -- and stocks 7% higher.
But the S&P 500's first up week in five has merely left stocks right back where they were a month ago. That's about 40% higher than the low point of 2009.
"Investors are dipping their toes in the water, but not diving in 100%," said Dave Hinnenkamp, CEO at KDV Wealth Management. "Earnings so far have brought some upside surprises, but we'll need to see that continue, supported by the economic news."
The week ahead brings a smattering of economic news, including reports on housing and the jobs market. But the main focus is the quarterly results.
This week, 145 of the S&P 500 companies will report results, or 23% of the broad index. American Express (AXP, Fortune 500), Microsoft (MSFT, Fortune 500), Coca-Cola (KO, Fortune 500) and Merck (MRK, Fortune 500) are among the 12 Dow components that are due to release results.
Investors will also keep an eye on troubled small business lender CIT Group (CIT, Fortune 500), which is fighting to stave off bankruptcy. The company, which reports results on Thursday, is reportedly in talks with JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500) about getting a loan.
Intel (INTC, Fortune 500), IBM (IBM, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500) and Citigroup (C, Fortune 500) all reported better-than-expected results or issued improved forecasts last week.
Those reports helped draw investors back into the market. Better-than-expected readings on retail sales and housing -- and an improved economic outlook from the Federal Reserve -- helped as well.
But beyond financial and technology, enough other companies either missed expectations or lowered estimates so as to keep the overall outlook for earnings little changed.
S&P 500 companies are expected to see profits fall 35.2% versus a year ago, according to Thomson Reuters. Last week, the forecast was for a drop of 32.7%.
"Relative to expectations, it's been a good start," said John Butters, senior research analyst at Thomson Reuters. "Companies are beating estimates and doing it by a wide margin, with the caveat that we have only seen 10% of the reports."
Reported results are beating estimates by an average of 11.2%, versus the long-term historic average of 1.7%, Butters said. But on the downside, only 55 of the 500 companies have reported results so far.
"Now we're going to really get into the heart of the earnings season and it will be important to see if this trend can hold up," he said.
With stocks once again gripping the top of a 40% rally off the lows, the trend better hold up.
Monday: Texas Instruments (TXN, Fortune 500) reports results after the close. The chipmaker is expected to have earned 18 cents per share versus 44 cents a year ago, according to a consensus of analysts surveyed by Thomson Reuters.
Tuesday: Five Dow components report results in the morning, including Coca-Cola, which is expected to have earned 89 cents per share versus $1.01 a year earlier.
Caterpillar (CAT, Fortune 500) is thought to have earned 22 cents per share versus $1.74 a year ago. Merck (MRK, Fortune 500) is expected to have earned 77 cents versus 86 cents a year ago. United Technologies (UTX, Fortune 500) likely earned $1.04 versus $1.38 a year ago. DuPont (DD, Fortune 500) likely earned 53 cents versus $1.11 a year ago.
After the close, Apple is expected to report a profit of $1.16 per share versus $1.19 a year ago. Fellow tech leader Yahoo is expected to have earned 8 cents per share versus 10 cents a year ago.
Thursday: Three Dow components are due to report before the start of trading.
3M (MMM, Fortune 500) is expected to have earned 94 cents per share versus $1.39 a year ago. McDonald's (MCD, Fortune 500) is expected to have earned 96 cents versus 94 cents a year ago. AT&T (T, Fortune 500) is thought to have earned 51 cents versus 76 cents a year ago.
After the close, Dow component American Express is expected to have reported a profit of 28 cents per share versus 56 cents a year ago.
Dow component Microsoft is expected to report a profit of 36 cents per share versus 46 cents a year ago.
Friday: No market-moving financial results are due Friday.
Monday: The index of leading economic indicators (LEI) is expected to have risen 0.5% in June, according to a Briefing.com survey of economists. LEI rose 1.2% in the previous month. The Conference Board report is due shortly after the start of trading.
Tuesday: Federal Reserve Chairman Ben Bernanke gives his semi-annual testimony on monetary policy to Congress this week, speaking before the House Financial Services Committee Tuesday and the Senate Wednesday.
Wednesday: The weekly crude oil inventories report from the Energy Information Administration is due shortly after the start of trading.
Thursday: June existing home sales from the National Association of Realtors is due after the start of trading. Sales are expected to have risen to a 4.80 million unit annual rate in June from a 4.77 million unit rate in May.
Also, the Labor Department releases the weekly jobless claims report before the start of trading.