In the coming week, a dozen of the Dow 30 stocks and about a quarter of the S&P 500 will report, including Apple, Goldman Sachs, Coca-Cola, IBM, McDonald's and Caterpillar. There are a small number of economic reports, and most of them focus on housing, a trouble spot for the economy.
Fed Chairman Ben Bernanke testifies on the economic outlook before Congressional committees Wednesday and Thursday, and by the end of the week, the focus will be back on Europe. Friday is the day that the results of stress tests on 91 European banks are scheduled to be revealed.
Investors are also focused on BP's latest efforts to stop the flow of oil from its broken well in the Gulf of Mexico. The well cap seemed to be succeeding at the time of the market close Friday.
Stocks climbed into the start of the second quarter earnings period, and a number of strategists had predicted a brief period of gains on earnings news before the market would once more stumble on worries about the economy, taxes and other matters. But now there is concern that those earnings gains may have been short-lived.
"My view is we are in a growth slowdown phase and we're going to live with it for awhile. I think second quarter earnings will help, but I think corporates, because they are scared of the same things you and I are afraid of, are afraid to give much in the way of guidance," said BlackRock vice chairman Robert Doll in a telephone interview.
"The good news is we slowed down to a slower rate of growth, not a double dip in my view. I think we will stay bumpy because of all the cross currents.. At some point, valuations also matter, and stocks are pretty cheap," Doll said.
In a note, Goldman Sachs stock strategists pointed to the worrying trend of individual stocks not responding to their own positive earnings reports.
"Arguably the S&P 500’s recent 7 percent rise heading into earnings season largely discounted much of the earnings upside. But it is not a positive sign when firms such as the Industrial firm W.W. Grainger post strong results with June US organic sales up 12 percent year/year and July tracking in-line with June so far and the shares close essentially flat on the week," they wrote.
Intel , which reported strong results and a strong forecast, saw the same effect.
Patrick Kernan, who trades S&P 500 options at the CBOE, said even with the big stock market decline Friday, there was a lack of panic in the market. "The VIX (the CBOE Volatility Index) was up 4 percent. Based on how we model, it should have been up 13 percent. What that means is that people weren't so nervous and there were people willing to sell options into the sell off, which I would say is more of a stable sign," he said.
Jefferies managing director Art Hogan said earnings may in fact help stocks in the coming week. "We had 23 reports, 20 upside surprises," he said. "So where did we start the month of July? 1019 (on the S&P)..Is the sky really falling? I think we're in pretty good shape. It's a tug of war between a soft patch in the economic data stream and strong corporate earnings," he said.
Doll said he has become more pro-cyclical since the stock market started correcting from its April highs. "Into the teeth of the decline, as the market went down in its 15 percent correction, a lot of cyclicals were down 30 to 40 percent," he said. Doll said he added to global cyclicals by trimming some holdings in health care, telecom and staples.
"My gut is we're in a range-bound market but with reasonable probability that we have seen the lows. We might have to test it again but I think we're in a bottoming phase," he said.
"I think the dire forecasts are only going to come true if we double dip, and I don't think we're going to have a double dip," he said.
Finally, JPMorgan Chase late on Friday cut its forecast for this year's U.S. economic GDP growth by a full point, to 2.6 percent.