Strong earnings may buoy stocks
Inflation has investors rattled, but solid 2Q earnings and some positive guidance could lift investor spirits next week.
NEW YORK (CNNMoney.com) -- Concerns over inflation and a slowing economy are weighing on the minds of investors, but the start of earnings season on Monday could sound a positive note, as analysts call for double-digit growth in corporate profits.
Stocks finished in the red last week after a monthly employment report deepened concerns that inflation is rising while economic growth is slowing.
The Nasdaq fell 1.9 percent on the week. The Dow finished down 0.5 percent and the broader S&P 500 lost 0.4 percent on the week.
The latest look at the labor market has investors worried that the Federal Reserve will hike interest rates again in August, but good news from corporate America could give investors a new focus this week.
Alcoa (Charts), the first Dow component to report, kicks off the second-quarter earnings season after the market close Monday. Fellow Dow component General Electric's (Charts) quarterly results are due Thursday. (See chart)
In total, second-quarter corporate earnings are expected to grow about 12.3 percent year over year, according to Thomson Financial. That's a blended figure, combining forecasted and reported earnings.
That's a slowdown from the 14.9 percent growth posted in the first quarter, but it will nevertheless represent the 12th straight quarter of double-digit gains for corporate earnings.
This week investors will also take in a string of economic reports, including readings on retail sales and consumer sentiment. (See chart)
But with a lack of heavy-hitting data on tap, stocks could be left seeking direction.
"I'm not sure there's any economic number I'm looking for," said Jordan Kimmel, a market strategist for National Securities Corp. "It's going to be a company by company parade."
Some analysts say even strong earnings won't be able to fire up investors.
"They'll be good, but not good enough," Kimmel said. "If you're looking for a catalyst for the rally, I don't think that's going to be it."
But Harry Clark, chief executive of Clark Capital Management, said that after Friday's sharp decline, stocks will be poised for a rebound Monday.
Stocks sold off Friday after the Labor Department said its monthly jobs report came in weak for the third straight month. The report also showed a rise in wages. (Full story)
Economists worry that rising wages will add upward pressure on inflation, which could keep the Fed on its course of raising interest rates.
Central bank policy-makers have hiked interest rates 17 straight times since June 2004 in an effort to keep inflation at bay, and many investors are waiting for the Fed to take its foot off the brake.
Some analysts said the rise in wages from Friday's closely-watched report was minor and would be more than offset by gains in productivity.
Others were more concerned.
"We're in a precarious position," said John Lekas, president of Oregon-based Leader Capital Management, referring not just to the pick-up in wage growth but to rising prices overall.
"The excessive commodity prices we've seen over the last year have finally come home to roost for the consumer," he said.
Related: Bargain hunting in a stormy market.