Here come the earnings - really
Last week brought a few big names but 25% of the S&P 500 reports this week, led by Microsoft, Yahoo!, Pfizer, Ford and AMD. Get ready.
NEW YORK (CNNMoney.com) -- The earnings reporting period heats up this week, with nearly a quarter of the S&P 500 due to release results, bringing questions about the pace of company profit growth front and center.
The earnings have been good so far, although you wouldn't know it from the stock market, which has struggled to react to upbeat quarterly results amid ongoing worries about the economy and the direction of interest rates.
Investors may also be reluctant to make big bets on stocks after a stellar second half of 2006. That was certainly the case last week when investors seemed determined to focus on the negatives in mostly upbeat results from GE, Citigroup and IBM. Meanwhile, companies that genuinely disappointed, in either results or forecasts, saw their stocks get hammered too.
What's a company got to report to see its stock get some respect?
"Companies are now in the habit of reporting better numbers but then talking down the future," said Charles White, portfolio manager at ThomasLloyd Global Asset Management.
"We've seen a handful of significant companies do that already," he added. "The challenge for investors is to try to discern if we've seen a meaningful trend or if it's just noise."
This week the trend becomes more clear, with 114 of the S&P 500 reporting results, including nine Dow components.
Beyond earnings, investors will also look at numbers on durable goods orders and the housing market, reports that will add to ongoing debates about the strength of the economy and whether the Fed is likely to cut interest rates anytime soon.
Energy prices will remain in focus as well, particularly with oil prices having slumped so far in 2007 - in response to milder winter weather and bets that supplies are adequate.
In addition, President Bush gives his State of the Union Address Tuesday night. The Republican leader will address a Democratic-controlled Congress for the first time in his presidency.
But on a day-to-day level, investors will likely be distracted by earnings.
Eye on earnings
So far about 15 percent of the S&P 500 has reported fourth-quarter results, according to Thomson Financial, with earnings on track to have grown about 9.3 percent. That's a blended figure, combining reported and expected earnings.
Early results have been positive. But more than half the results have been from companies in the financial sector, where profits are expected to among the strongest of any sector. That means the overall results are a little misleading, noted John Butters, senior research analyst at Thomson Financial.
"The financials were expected to do well and so far they've exceeded expectations," Butters said. "Over the next two weeks we'll here from a variety of sectors."
A number of tech stocks have reported as well but the week ahead brings a wider swath of names. Standouts include Pfizer (Charts), American Express (Charts), Microsoft (Charts), Yahoo! (Charts), eBay (Charts), Ford Motor (Charts) and Amgen (Charts). (see chart for details).
The projected growth of less than 10 percent for the fourth quarter would mark the first time profits have expanded less than 10 percent since early 2002. Earnings growth is expected to slow further later this year, due to the tough comparisons from a year ago and the slowdown in the economy.
How the slowdown will impact stocks remains far from clear.
"The deceleration of earnings growth has been widely forecast and much of it is in the market already," said John Davidson, president and CEO at PartnerRe Asset Management. "But when the reality of it hits, that may be different."
The upcoming week should bring the first dose of that reality.