About a quarter of companies report earnings in the coming week, and that could be a positive catalyst for stocks as worries about and drift into the background.
So far, just several dozen companies have reported, and the usual 70 percent-plus beat on the top-line, while just about half beat on revenue. Among the names reporting next week are , IBM, , , , and .
"The reaction to earnings has been relatively good," said Paul Hickey, co-founder of Bespoke. "Coming into this earnings reporting period, analysts' sentiment was negative. We were getting more downward revisions than upward revisions, and typically when you see that coming into a reporting period, the market performance is much better than when you see analysts upping their estimates."
There is very little economic data, but there are reports on existing home sales and new home sales Wednesday and Friday, respectively. Markit PMI for the U.S. and euro zone is released Friday.
"I think the dollar, commodity nexus is going to be the thing people start focusing on in the absence of economic data," said Robert Sinche, global strategist at Amherst Pierpont Securities.
In the past week, commodities took a drubbing as the dollar index gained almost 2 percent. Oil slumped with West Texas Intermediate crude futures down more than 4 percent for the week, after Iran agreed to a nuclear deal that would allow it to put more oil onto the already oversupplied world market. WTI futures traded close to $50 and a break below that could take crude back to its lows of the year at around $42 per barrel, analysts say.
But other commodities also tumbled with the rising dollar. Gold was off more than 2 percent for the week and silver was down more than 4 percent. Copper fell 1.8 percent, and wheat and corn were also lower.
"I think the next story is going to be commodities. How far do these go down? Is it fundamental or is it some financial investors getting out of commodities because they don't look so good with the rise in short-term rates in the U.S.?" said Sinche.
The U.S. Treasury yield curve did flatten in the past week, with short-term rates moving closer to longer-duration yields on expectations of a Fed rate hike. The central bank's chair, Janet Yellen, testified for two days before Congress this past week, and emphasized that the Fed could raise rates this year, depending on the economic data.
While most economists expect a September rate hike, the market has stubbornly priced in a later rise and some bond market participants don't see a rate increase until next year.
Nuveen Asset Management's Robert Doll said the stock market should not fear a small rate hike from the current zero level. "I think they're (the Fed) dying to get started and they should, and my guess is, absent something cataclysmic, they probably go in September," he said.
Stocks closed out the week with gains after Greece accepted austerity measures required for its bailout. There was also a pickup in Chinese data and shares ended the week higher. The S&P 500 was up 2.4 percent for the week at 2,126.64, within 5 points of its record close. The ended the week up 4.2 percent at a new closing high.
"What matters to the market most is always the economy and earnings. We kind of got away from that because we focused on the Fed and Greece and China," said Doll, who is chief equity strategist and a senior portfolio manager. "Earnings are coming out, and they're OK ... I think they'll at least meet and probably exceed expectations. I think with the disappointments in the first quarter due to falling oil prices and the rising dollar, and economic weakness, the cuts were overdone, and therefore I think the estimates are too low."
Doll said he expects the consumer to help generate gains for stocks in the second half, as the benefits from lower oil should finally kick in.
"The conditions for a good second half is better visibility on earnings. I think we'll get it. I think it comes from the consumer. If I'm wrong, then I think it's two steps forward and one step back. Keep your eye on wage growth. If we get some wage increases, I think it's more good news for the consumer," Doll said. He dismissed concerns that corporate margins would suffer if wage growth picks up. "Margins start to struggle and earnings do too when wage growth gets to around 4 percent, and we're a ways away from that."
Doll said he expects the economy to strengthen as the year goes on. "I think stocks are pretty interesting compared to other places you can put your money. The S&P 500's yield is not all that different than the 10-year Treasury, 2.15 percent for the S&P and 2.35 percent for the 10-year Treasury," he said. Doll said he could see the market doubling its current 2015 gain of 3 percent by year-end.
Doll said the drop in oil prices could continue to send ripples across the stock market. "It certainly held the market back, not only because stocks are at their lows, but energy earnings are way off from year-ago levels. If you (took) out energy, earnings are up almost 10 percent. It's a big drag," he said.
Sinche said he expects earnings to be important for sentiment but some of the same concerns about the strong U.S. dollar from earlier in the year could return. "The negative impacts from the stronger dollar faded in the second quarter, and now the dollar is moving back up again. Much of the feeling had been the big negative dollar effect would be felt in the early part of the year, but now it looks like the third quarter would be another quarter where year-over-year comparisons could be tough for foreign entities," he said.
In the week ahead, Sinche says watch gold futures. He's got his eye on the $1,086 level, the 50 percent retracement of the move lower from $1,983, and a breakthrough that could take gold to $1,000. "I think a 50 percent retracement of a move that took place over a dozen years is a big deal," he said. Gold futures settled Friday at $1,131.90 an ounce, the lowest level since April 2010.
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