The rocky ride for the U.S. stock market may intensify this week if earnings reports from JPMorgan Chase, Merrill Lynch, Citigroup and other large banks and financial services companies rattle investors already concerned about a U.S.-led economic slowdown.
Wall Street also will contend with reams of economic data, with two inflation indicators -- the Producer Price Index and the Consumer Price Index -- set for release. The calendar includes U.S. housing starts, industrial output and capacity utilization, and the Fed's Beige Book.
Strains in the credit markets have not gone away, as billions of dollars of losses tied to U.S. subprime mortgage investments continue to build on bank balance sheets around the world. But investors are on the lookout for signs that first-quarter losses could be less than expected, helping to affirm the beginning of the bottoming phase in credit markets.
"What markets are going to look at is: 'Have the financial losses begun to decline?' and 'Is the guidance going to (show) that we are starting to see the light at the end of the tunnel?"' said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
"If they are worse than the negative sentiment or expectations, then financial stocks probably are going to get knocked down again," added Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22 billion.
Some may not get that one-two punch, however. Though profit per share may fall by nearly half at JPMorgan , which had an estimated $26.4 billion of leveraged loan exposure, the bank has steered clear of other credit minefields.
"JPMorgan has been in the news a lot and they've done better than average for commercial banks, but we want to see what they say about the future," Wirtz said. Tech bellwethers Intel Corp. and International Business Machines, plus some big Internet names, Google Inc . and eBay Inc. , will report quarterly results this week.
CREDIT WOES SPREAD BEYOND BANKS
As a whole, analysts now predict S&P 500 companies' earnings to fall 11.8 percent from a year ago, worse than the 8.1 percent drop they predicted a week ago, according to Reuters Estimates. However, much of the fall in earnings is rooted in the financial sector, where profits are expected to plunge 61 percent.
But even General Electric -- which is viewed as an economic bellwether because of the variety of its businesses and known for rarely missing its estimates -- Friday reported an unexpected 6 percent profit drop on weakness in its wide-ranging financial-services operations. GE, the second-largest U.S. company by market capitalization, also sharply lowered its full-year earnings forecast, now predicting little to no growth for all of 2008.
That compares with an earlier view from GE of "at least" 10 percent. Jeffrey Immelt, the GE chief executive, acknowledged that recent financial developments, including the collapse of Bear Stearns in mid-March, took a severe toll. Earnings at the company's financial services operation plummeted 19 percent for the quarter.
GE's disappointing report heightened fears of more grim earnings news and profit outlooks in coming quarters, sending the Dow Jones industrial average down 256.56 points on Friday to 12,325.42 and the Standard & Poor's 500 index down 27.72 points to 1,332.83. Both the Dow and the S&P 500 fell 2.04 percent for the day. The Nasdaq Composite Index lost 61.46 points, or 2.61 percent, to 2,290.24.
For the past week, the Dow fell 2.3 percent, the S&P 500 slid 2.7 percent and the tech-heavy Nasdaq dropped 3.4 percent.
ADD INFLATION TO THE WORRY LIST
Not only are earnings reports on Wall Street's radar, a deluge of economic data might keep stock investors on edge. The latest inflation figures will be released with the producer prices index, or PPI, on Tuesday and the consumer price index, or CPI, the following day.
"I don't think these are going to be fun," Ernie Ankrim, the chief investment strategist for Russell Investment Group based in Tacoma, Washington, said of the PPI and CPI.
According to the median forecast of economists polled by Reuters, the overall PPI is expected to gain 0.6 percent in March. That is up from the actual 0.3 percent rise in the PPI for February.
But the core Producer Price Index, which strips out food and energy prices, is expected to gain 0.2 percent, after rising a greater-than-expected 0.5 percent in February.
For its part, the overall Consumer Price Index is expected to rise 0.4 percent in March, following a flat month in February, while core CPI is expected to advance 0.2 percent, up from a flattish February, according to the average forecast of economists polled by Reuters.
"The world is running up on capacity and passing on prices," Ankrim said. "I think that's the big change we've seen here and it causes the Federal Reserve now to have to re-evaluate whether or not they want to be aggressive in cutting interest rates."
Heading toward the Federal Open Market Committee's April 29-30 meeting, short-term interest-rate futures are divided between betting on a one-quarter or a one-half point rate cut.
The federal funds rate now stands at 2.25 percent. (Additional reporting by Caroline Valetkevitch, Jonathan Stempel and Ros Krasny)