Outlook: Investors Bracing For Big Earnings Week
For investors, the coming week is all about earnings.
A slew of companies will be reporting third-quarter results, and investors will be watching not only for the latest figures but what companies predict about future profits.
"Everyone knows third-quarter earnings are going to be lousy," said Alec Young, market strategist at Standard & Poor's. "It's not going to be about results, but about guidance."
Among the notable names, Citigroup and Genentech are set to report results on Monday, Coca-Cola and Altria on Wednesday, Wyeth on Thursday and Caterpillar and Honeywell on Friday.
Credit market turbulence and other ongoing economic concerns have prompted stock analysts to ratchet down third-quarter earnings forecasts, which were as high as 6.2% in July. Analysts now expect earnings to fall by 0.1% in the third quarter, according to recently revised estimates from Thomson Financial.
"I think every quarter you have earnings get reduced by a couple of percentage points right up until earnings season starts," said John Massey, portfolio manager at AIG SunAmerica Asset Management. "It's the sell-side playing the same old game. I wouldn't be surprised to see a 4% growth number this quarter."
Another Volatile Week
The markets went through another up-and-down week after some companies reported their results, including Alcoa and Costco Wholesale.
Alcoa reported third-quarter earnings last Tuesday a penny below Street expectations but noted that China should remain a major driver of aluminum demand and raised its growth projections in China by 36 percent.
Costco shares jumped after the No. 1 U.S. warehouse club operator reported better-than-expected earnings and posted September same-store sales above Wall Street estimates. In addition, restaurant operator Yum! Brandsreported strong earnings and raised guidance.
After the Dow Jones Industrial Average and the S&P 500 each set new closing highs on Tuesday, stocks were hit by a late selloff Thursday, led by a pullback in technology shares.
At the end of a volatile trading week, the Dow gained 0.2%, the S&P 500 index gained 0.3%, while the Nasdaq Composite posted slightly bigger gains of 0.9%.
Big Tech Names Report
A number of technology bellwethers are also set to report this week. Chip giant Intel will announce results on Tuesday while fellow Dow component IBM is also scheduled to post earnings.
"I think Intel is going to have a good quarter, people are concerned with PC's which have been extremely strong but the question is that will it continue," said Massey. "Channel checks have shown order cancellations but the Street is quite divided on fourth quarter guidance."
Major pharmaceutical companies with strong overseas sales should benefit from the weak dollar, which recently hit an historical low against the euro, says Rick Pendergraft, market analyst at Investor's Daily Edge, an investment newsletter.
"When the dollar is weak it usually helps big cap pharma," he said. "We might see great earnings out of Johnson and Johnson because of the weakening dollar, versus an Intel who is importing a lot of components. So it could be on a sector-by-sector basis."
"Every sector has their their momentum leaders -- in tech, it's Research in Motion and Apple -- some companies have been doing quite well," said Massey.
"Now we're facing earnings season and it's going to be the haves and have-nots," he added. "There will be a broad range -- companies will miss and some will do quite well."
Economic Data Out
Investors also will focus on economic data which should provide further clues on the health of the U.S. economy, according to market strategists.
On Wednesday, The Labor Department will release its latest monthly consumer price index, or CPI, which is expected to rise by 0.2%. The Federal Reserve's Beige Book report on current U.S. economic conditions is also set for release on Wednesday.
The Fed said at its last policy meeting that it felt comfortable cutting its federal funds target rate by half a percent to 4.75 percent without fear of stoking inflation, according to minutes from the September policy meeting. But the Fed noted that a sustained moderation in price pressures had not yet materialized.
"I think a lot of people are still keeping an eye on the Fed and are losing track of the fundamentals behind the market," said Pendergraft. "People are focusing on the Fed as if they are waving a magic wand with rate cuts; investors are looking at the short term view and not seeing the big picture."
Among other data releases is U.S. industrial output and the Philadelphia Federal Reserve's business activity index, which measures factory activity in the Midatlantic region and is often used as an indicator of how nationwide manufacturing activity is performing.
"Peter Kang is a markets writer for CNBC.com and can be reached at email@example.com.