Market will 'drift for the rest of summer'

chart_lookahead_100723.top.gif By Alexandra Twin, senior writer


NEW YORK (CNNMoney.com) -- As a strong July draws to a close, the earnings reporting period is just heating up, with 157 of the biggest companies in the country due to open their books in the week ahead.

Standouts include Dow components Boeing (BA, Fortune 500) (Tues.), DuPont (DD, Fortune 500) (Wed.), Exxon Mobil (XOM, Fortune 500) (Thurs.), and Chevron (CVX, Fortune 500) and Merck (MRK, Fortune 500) (Friday). Also, BP (BP) reports Tuesday, the first snapshot of the company's performance during the quarter in which the oil spill began.

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On the economic front, reports are due on housing, GDP, consumer confidence and the jobs market.

"It's a tug-of-war between the stronger earnings and the signs that the economy is not recovering as rapidly as it has after other recessions," said Donald Selkin, chief market strategist at National Securities.

Stocks managed to climb higher last week as investors welcomed better-than-expected results from UPS (UPS, Fortune 500), Microsoft (MSFT, Fortune 500), American Express (AXP, Fortune 500) and others.

An easing of worries about the European debt crisis also helped fuel the run. Month-to-date, the Dow is up about 6.7% and is on track to end its best month in a year, on both a point and a percentage basis.

But the market is likely rangebound for the time being, Selkin said.

"It looks like we're going to drift for the rest of the summer in this range and then maybe we can see the traditional fourth-quarter rally," he said.

Typically, stocks run up in the last three months of the year, although the market has been defying seasonal patterns over the past few years, amid the financial market crisis and the recession.

Profits rise: With around one-third of the S&P 500 having reported second-quarter results, earnings are currently on track to have risen nearly 34% from a year ago while revenues jumped 9.5%, according to earnings tracker Thomson Reuters.

"So far, so good," said John Butters, senior research analyst at Thomson Reuters.

Companies by and large are beating estimates and showing growth from the previous year. Currently 78% of companies have topped earnings estimates and 67% have topped revenue forecasts, surpassing the long-term average and keeping pace with the past few quarters.

"It's not just that the companies are beating estimates, it's that they're showing growth on both an earnings per share and revenue basis," Butters said.

He said the one "red flag" is that third quarter forecasts have been far more negative than positive, with three companies lowering estimates for every one that has raised its forecast, the worst ratio in a year. While full-year 2010 forecasts have inched up this week, the increases have mostly been a reflection of strong second-quarter results rather than optimism about the second half.

However, its still early in the reporting period, he said, and the trend could change. Investors will have a better sense of how Corporate America is holding up at the end of the week ahead, when a host of companies report.

On the docket

Monday: The Commerce Department's new home sales index is due after the start of trading. Sales are expected to have risen to a seasonally adjusted annual unit rate of 310,000 in June, according to a consensus of economists surveyed by Briefing.com. That would represent a modest recovery from May.

In May, new home sales plunged 33% to a seasonally adjusted annual unit rate of 300,000, the lowest on record (which dates to 1963), amid the expiration of the homebuyer tax credit.

Tuesday: The Case-Shiller 20-city home price index is expected to have risen 4% in June versus a year ago after rising 3.8% in May.

After the start of trading, the Conference Board releases the Consumer Confidence index for July. The index is expected to have fallen to 51 from 52.9 in June.

Wednesday: June durable goods orders are expected to have risen 1% after falling 0.6% in May. Orders excluding transportation are expected to have risen 0.5% after rising 1.6% in May. The Commerce Department report is due before the start of trading.

The government's weekly oil inventories report is also due in the morning, but is not usually a big market mover. In the afternoon, the Federal Reserve releases its "beige book" reading on the economy's 12 districts.

Thursday: The Department of Labor releases weekly jobless claims figures in the morning. The number of Americans filing new claims for unemployment last week is expected to have held steady at 464,000. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, is expected to have risen to 4,550,000 from 4,487,000 in the previous week.

Friday: GDP growth in the second quarter is expected to be revised down to a 2.5% annualized rate from the initially reported 2.7% rate.

The Chicago PMI, a regional reading on manufacturing, is expected to have fallen to 56.5 in July from 59.1 in June.

The revised reading on consumer sentiment from the University of Michigan is expected to come in at 67.5 in July, up from the previously reported 66.5. To top of page

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