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Market Tensions could run high with Bernanke, earnings in week ahead

Tom Brakefield | Photodisc | Getty Images

Dozens of earnings reports and two days of Federal Reserve testimony could make the coming week a tense time for bulls, who are hoping to see stocks keep breaking out to new highs.

There are a number of important economic reports, including retail sales Monday; CPI and industrial production Tuesday, and weekly jobless claims Thursday. But even before the first U.S. economic report, markets will be keenly focused on an important data release on China's second-quarter GDP,released Sunday night New York time and expected to disappoint.

(Read more: China could 'shock' markets with big GDP miss)

Fed Chairman Ben Bernanke testifies before a House panel Wednesday and a Senate committee Thursday on the economy, in his semi-annual testimony. Bernanke this past week sent stocks flying when he made reassuring comments Wednesday that the Fed will back away slowly from its easing programs.The Dow and S&P 500 both rocketed to new closing highs Thursday but did not quite reach the intraday highs set in May.

The S&P and Dow set another record closing high Friday. The S&P closed at 1680, up nearly three percent for the week, and seven points below its all-time high. The Dow gained 2.2 percent to 15,464, and is 78 points away from its May 22 intraday high. The Nasdaq, meanwhile, outperformed both of them, jumping 3.5 percent to 3600.

Stocks in the past week got an early taste of the second quarter earnings season, but the upcoming reports cover the spectrum from financials, like American Express, Goldman Sachs and Citigroup, to big tech names Intel, Google and Microsoft, and consumer giants, like Johnson and Johnson and Coca-Cola. In this coming week, a third of the Dow components report, and about 75 S&P 500 companies, release earnings for a quarter that is expected to have produced just tepid growth.

"The next big thing is going to be earnings and the consensus is two- to three-percent growth. I think it will be more like five to six percent," said Ed Keon, portfolio manager at Quantitative Management Associates. Earnings for the S&P are expected to grow 2.8 percent this quarter, and revenues are expected to grow just over 1 percent, according to Thomson Reuters. Keon expects the economy, growing around 1 percent in the second quarter, to improve as the year goes on, and he expects earnings growth to return to a more normal level, which should help keep stocks moving higher.

"I do think we'll set new highs between now and the end of the year," he said.

Art Hogan of Lazard Capital Markets said the market will be watching Bernanke, but earnings may shift the focus away from the Fed, especially since low expectations should help boost the stocks of companies that easily beat forecasts. "I think we already made one transition, and that is very healthy. It's the acceptance. We moved away from the trepidation about Fed tapering. Market participants have gotten their head around that it's going to happen," he said.

Treasury yields in the past week moved lower from the prior week's highs, helping to ease concerns in the stock market. But the 10-year yield stayed above 2.5 percent, a level that had spooked stocks not long ago. It was at 2.59 percent late Friday. While Bernanke did not say much new Wednesday, bond yields moved lower, the dollar plunged and stocks rallied on his assurance the Fed does not plan to raise rates in the near future and will not taper off bond purchases unless the economy is strong enough.

His comments came several hours after minutes of the Fed's June meeting showed half the members want to wind down quantitative easing, or the $85 billion in monthly bond purchases by the end of the year.

Jefferies chief financial economist Ward McCarthy said the market is confused by the new open nature of the Fed. "I think the market's really struggling to grasp the significance of the deputized chairman. In my experience with the Fed, it's unprecedented that the chairman characterizes himself in that way, and as a consequence, what we have seen is two Bernankes," he said. "When he is speaking for himself, he is cautious and tends to be dovish by focusing, for example, on what he thinks is a weak labor market, and when he speaks as a deputized chairman which means he is trying to speak for the committee as a whole, he comes off as much more hawkish."

Therefore, Bernanke's written testimony may sound more dovish when he delivers it to Congress Wednesday, but when asked a question about Fed policy, he will take on the more hawkish tone of the blended views of the Fed. McCarthy said that would be similar to how Bernanke testified at the Joint Economic Committee last month, when his strong comments about tapering quantitative easing were made in response to questions.

(Read more: 'Taper' talk bumps bond yields, drives down stocks)

"There are clearly very deep divisions going on in the Fed right now about the approach to take to get the balance sheet to neutral policy," McCarthy said.

As for other events this week, McCarthy said some of the economic data will be important. "I think we're going to get a solid read on retail sales and sort of feisty CPI so that will matter too but Bernanke will matter most," he said.

Traders are also watching the oil market. WTI crude was at $105.95, a jump of more than 2.5 percent for the week. Gasoline prices have been bubbling higher and are expected to jump even more in the coming week, as demand is at its peak for the year and oil prices have moved sharply higher in the last several weeks. The national average for unleaded regular rose to $3.55 per gallon Friday, up eight cents from the week earlier.

(Read more: Sharp jump in US gasoline prices seen within days)

Europe will also be a focus. Portuguese bond yields surged Friday on political uncertainty. The leader of Portugal's socialist opposition Antonio Jose Seguro told parliament that the country must end its commitment to austerity.

The finance ministry was given a delay in the next review of the bailout program by international lenders, a surprising move since the representatives of the ECB, IMF and European Commission were supposed to begin their review Monday.

What to Watch (all times ET)

Monday

China GDP, Industrial production, retail sales

Earnings: Citigroup, JB Hunt Transportation

0800 am Fed Gov. Daniel Tarullo on regulation

0830 am Retail sales

0830 am Empire state survey

1000 am Business inventories


Tuesday

Earnings: Coca-Cola, Johnson & Johnson, Charles Schwab, Goldman Sachs, Comerica, Mosaic, CSX, Yahoo, Pinnacle Financial, Interactive Brokers

0830 am CPI

0900 am TIC data

0915 am Industrial production

1000 am NAHB

0215 pm Kansas City Fed President Esther George


Wednesday

Earnings: Bank of America, American Express, IBM, Intel, Abbott Labs, Bank of NY Mellon, First Republic Bank, Mattel, M&T Bank, Northern Trust, Novartis, Piper Jaffrey, PNC Financial, St. Jude Medical , Textron, US Bancorp, eBay, El Paso Pipeline Partners, Crown Holdings, Core Labs, Kinder Morgan, Kinder Morgan Energy, Noble, Sallie Mae, Texas Industries, SanDisk, Umpqua, Xilinx

Delivering Alpha conference, produced by CNBC and Institutional Investor. Speakers include U.S. Attorney Preet Bharara, and investors Carl Icahn, John Paulson, Nelson Peltz

0830 am Treasury Secretary Jack Lew speaks at Delivering Alpha

0830 am Housing starts

1000 am Fed Chairman Ben Bernanke testifies before House Financial Services Committee

1030 am EIA Crude oil and refined products inventories

0200 pm Beige book

Thursday

Earnings: United Health, Google, Verizon, Microsoft, AutoNation, BlackRock, Blackstone, Philip Morris, Morgan Stanley, PPG Industries, Safeway, SAP, Nokia, Nucor, Sherwin Williams, Union Pacific, Snap-On, Advanced Micro, Celanese, Capital One, Chipotle, Intuitive Surgical, Stryker, BB&T, Checkpoint Software, Genuine Parts, Fifth Third, Ericsson, Danaher, Johnson Controls, Huntington Bancshares, KeyCorp

0830 am Initial claims

1000 am Philadelphia Fed survey

1000 am Leading indicators

1000 am Bernanke testifies before Senate Banking Committee

1030 am EIA Natural gas inventories

Friday

Earnings: GE, Baker Hughes, Honeywell, Kansas City Southern, Rockwell Collins, Manpower Corp, Schlumberger, State Street, SunTrust, VF Corp, Vodafone, Whirlpool

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.