SAN FRANCISCO (AFX) -- U.S. stocks could face pressure next week ahead of consumer and wholesale-price data and a heavy slate of quarterly results from financial and technology companies.
The specter of inflation is evident in higher Treasury yields. The rate on 10-year climbed above 5% on Thursday for the first time since June 2004, reflecting expectations that the Federal Reserve will raise rates by another quarter point at its May meeting.
Federal Reserve governor Donald Kohn said this week that the Fed's top priority is to tame inflation. 'At this juncture, given the apparent strength in demand and the narrowing margin on unused resources, I am focused on making sure that inflation and inflation expectations remain well anchored,' said Kohn, who made his remarks to business leaders in Oklahoma City on Thursday. 'I do not know how much policy firming will be needed to accomplish this objective,' Kohn said.
The combination of rate worries with the inflation data makes the market look vulnerable next week, said Stephen Sachs, head of trading at Rydex Investments in Maryland.
'I'm definitely more cautious,' said Sachs. 'The pullback that we've seen over the last week, or so, is a precursor to what the reaction is going to be during earnings season.'
Among the companies slated to release results next week are International Business Machines , J.P. Morgan Chase & Co. and Google Inc. .
Michael Malone, trading analyst at Cowen & Co. also sees the stocks in a softer position.
'I'm concerned that the market may remain under pressure, primarily driven by the fact that yields on bonds continue to move up and that has kept a lid on equities...of late,' he said.
Sachs said stocks could also be hurt if the estimates for an overall decrease in earnings prove to be correct.
'Analyst expectations for year-over-year earnings growth has been pared back to about 10%,' he said. 'It appears the Street is getting more and more cautious on how well corporate America is doing.'
A number of newspaper publishers, for instance, turned in sluggish reports last week due particularly to the uneven advertising environment, and have been cautious about their forecasts.
Next week, homebuilders including D.R. Horton Inc. are expected to report higher quarterly results, but analysts will watch for how new home orders are shaping up in light of rising mortgage rates and growing inventories.
'People have been worried for the last several quarters that earnings were going to slow down,' said Mike Holland, fund manager of the Holland Balanced Fund. 'If in fact they don't slow down and if it looks as if there's no resumption of inflation ... it'll be interesting to see how people respond to that.'
Energy prices will also remain in focus. Crude prices closed the week at $69.32 a barrel, up 2.9% from a week ago, as concerns about Iran's nuclear program overshadowed data showing the nation amply supplied with oil.
The Dow Jones Industrial Average closed Thursday at 11,137.65, up 0.2% for the week.
The Nasdaq composite closed at 2,326.11 and finished the week lower by 0.6%. The S&P 500 picked up 1 point to 1,289.12 to close the week down 0.5%.
Inflation data on tap
The increase in energy prices could result in somewhat worrisome headline inflation numbers, but many economists expect core inflation to remain in check.
The Labor Department on Tuesday will release its report on U.S. wholesale prices, which are expected to rise 0.4% in March, according to a survey of economists polled by MarketWatch. In February , the Producer Price Index dropped 1.4% on lower energy and food prices.
The core PPI -- which excludes volatile food and energy prices -- is expected to rise 0.2%, compared with the higher-than-expected 0.3% in February.
Also on Tuesday, minutes from the first Federal Open Market Committee under new Chairman Ben Bernanke will be released.
Investors will pore over the Consumer Price Index on Wednesday, which is seen rising 0.3% for March because of higher gasoline prices. Consumer price inflation reflected a tame 0.1% increase in February.
The core consumer price index, which also excludes food and energy prices, is seen rising 0.2%, according to the MarketWatch poll. The core CPI rose 0.1% in February.
'A sharp jump in prices at the gas pump should help push up headline CPI this month,' said Morgan Stanley & Co. in a note. 'And, the core is expected to be somewhat elevated relative to its recent trend,' it said because of an anticipated jump in rates for hotels, in medical care prices due to a change in Medicare reimbursement schedules; and apparel.
The index of leading economic indicators is slated for release by the Conference Board on Thursday.
Earnings season ramps up
Some of the biggest names in the technology and financial sectors are scheduled to report next week, with 119 S&P 500 companies and 12 Dow components on the schedule, according to Thomson Financial.
For the first quarter, year-over-year earnings growth rate was unchanged from last week at 10.4%, and was below the 12.1% estimate projected at the start of the quarter.
On the pre-announcements front, Thomson's negative-to-positive ratio decreased to 2.3 from 2.4 this week. That means there have been 2.3 negative preannouncements for every positive one.
The 2.3 ratio is above the fourth-quarter ratio of 2.1 at the same point in time for the quarter and above the long-term average of 2.0.
On Monday, look for results from Citigroup Inc. , and Wachovia Corp. .
Also on Monday, Charles Schwab Corp. will kick off the week for reports from online brokers. Schwab, E-Trade Financial Corp. and TD Ameritrade Holding are seen posting higher profits thanks to rising stock markets and interest rates.
Growth in the capital markets are also seen fueling the bottom lines of trust banks such as State Street Corp. and Mellon Financial Corp. . Results from State Street and Mellon are set for Tuesday.
Reports from Merrill Lynch & Co. , Texas Instruments Inc. , and IBM are due Tuesday.
IBM is expected to report a 23% rise in first-quarter earnings on lower sales stemming from the sale of its personal-computer business to Lenovo Group.
On Tuesday, Yahoo Inc. will be the first of the biggest Internet companies to release results, with eBay Inc. scheduled for Wednesday and Google for Thursday.
Results from J.P. Morgan are expected on Wednesday as well as from Intel Corp.
Sales of iPods and Macs will be in the spotlight in Apple Computer Inc.'s report on Wednesday.
Bank of America Corp. , Bank of New York Co. , Merck & Co. , General Motors Corp. and Continental Airlines Inc. are among the companies on deck for Thursday.
Rounding out the week will be reports from 3M Co. , Ford Motor Co. , Wyeth and RadioShack Corp. on Friday. This story was supplied by MarketWatch. For further information see www.marketwatch.com.
The specter of inflation is evident in higher Treasury yields. The rate on 10-year climbed above 5% on Thursday for the first time since June 2004, reflecting expectations that the Federal Reserve will raise rates by another quarter point at its May meeting.
Federal Reserve governor Donald Kohn said this week that the Fed's top priority is to tame inflation. 'At this juncture, given the apparent strength in demand and the narrowing margin on unused resources, I am focused on making sure that inflation and inflation expectations remain well anchored,' said Kohn, who made his remarks to business leaders in Oklahoma City on Thursday. 'I do not know how much policy firming will be needed to accomplish this objective,' Kohn said.
The combination of rate worries with the inflation data makes the market look vulnerable next week, said Stephen Sachs, head of trading at Rydex Investments in Maryland.
'I'm definitely more cautious,' said Sachs. 'The pullback that we've seen over the last week, or so, is a precursor to what the reaction is going to be during earnings season.'
Among the companies slated to release results next week are International Business Machines , J.P. Morgan Chase & Co. and Google Inc. .
Michael Malone, trading analyst at Cowen & Co. also sees the stocks in a softer position.
'I'm concerned that the market may remain under pressure, primarily driven by the fact that yields on bonds continue to move up and that has kept a lid on equities...of late,' he said.
Sachs said stocks could also be hurt if the estimates for an overall decrease in earnings prove to be correct.
'Analyst expectations for year-over-year earnings growth has been pared back to about 10%,' he said. 'It appears the Street is getting more and more cautious on how well corporate America is doing.'
A number of newspaper publishers, for instance, turned in sluggish reports last week due particularly to the uneven advertising environment, and have been cautious about their forecasts.
Next week, homebuilders including D.R. Horton Inc. are expected to report higher quarterly results, but analysts will watch for how new home orders are shaping up in light of rising mortgage rates and growing inventories.
'People have been worried for the last several quarters that earnings were going to slow down,' said Mike Holland, fund manager of the Holland Balanced Fund. 'If in fact they don't slow down and if it looks as if there's no resumption of inflation ... it'll be interesting to see how people respond to that.'
Energy prices will also remain in focus. Crude prices closed the week at $69.32 a barrel, up 2.9% from a week ago, as concerns about Iran's nuclear program overshadowed data showing the nation amply supplied with oil.
The Dow Jones Industrial Average closed Thursday at 11,137.65, up 0.2% for the week.
The Nasdaq composite closed at 2,326.11 and finished the week lower by 0.6%. The S&P 500 picked up 1 point to 1,289.12 to close the week down 0.5%.
Inflation data on tap
The increase in energy prices could result in somewhat worrisome headline inflation numbers, but many economists expect core inflation to remain in check.
The Labor Department on Tuesday will release its report on U.S. wholesale prices, which are expected to rise 0.4% in March, according to a survey of economists polled by MarketWatch. In February , the Producer Price Index dropped 1.4% on lower energy and food prices.
The core PPI -- which excludes volatile food and energy prices -- is expected to rise 0.2%, compared with the higher-than-expected 0.3% in February.
Also on Tuesday, minutes from the first Federal Open Market Committee under new Chairman Ben Bernanke will be released.
Investors will pore over the Consumer Price Index on Wednesday, which is seen rising 0.3% for March because of higher gasoline prices. Consumer price inflation reflected a tame 0.1% increase in February.
The core consumer price index, which also excludes food and energy prices, is seen rising 0.2%, according to the MarketWatch poll. The core CPI rose 0.1% in February.
'A sharp jump in prices at the gas pump should help push up headline CPI this month,' said Morgan Stanley & Co. in a note. 'And, the core is expected to be somewhat elevated relative to its recent trend,' it said because of an anticipated jump in rates for hotels, in medical care prices due to a change in Medicare reimbursement schedules; and apparel.
The index of leading economic indicators is slated for release by the Conference Board on Thursday.
Earnings season ramps up
Some of the biggest names in the technology and financial sectors are scheduled to report next week, with 119 S&P 500 companies and 12 Dow components on the schedule, according to Thomson Financial.
For the first quarter, year-over-year earnings growth rate was unchanged from last week at 10.4%, and was below the 12.1% estimate projected at the start of the quarter.
On the pre-announcements front, Thomson's negative-to-positive ratio decreased to 2.3 from 2.4 this week. That means there have been 2.3 negative preannouncements for every positive one.
The 2.3 ratio is above the fourth-quarter ratio of 2.1 at the same point in time for the quarter and above the long-term average of 2.0.
On Monday, look for results from Citigroup Inc. , and Wachovia Corp. .
Also on Monday, Charles Schwab Corp. will kick off the week for reports from online brokers. Schwab, E-Trade Financial Corp. and TD Ameritrade Holding are seen posting higher profits thanks to rising stock markets and interest rates.
Growth in the capital markets are also seen fueling the bottom lines of trust banks such as State Street Corp. and Mellon Financial Corp. . Results from State Street and Mellon are set for Tuesday.
Reports from Merrill Lynch & Co. , Texas Instruments Inc. , and IBM are due Tuesday.
IBM is expected to report a 23% rise in first-quarter earnings on lower sales stemming from the sale of its personal-computer business to Lenovo Group.
On Tuesday, Yahoo Inc. will be the first of the biggest Internet companies to release results, with eBay Inc. scheduled for Wednesday and Google for Thursday.
Results from J.P. Morgan are expected on Wednesday as well as from Intel Corp.
Sales of iPods and Macs will be in the spotlight in Apple Computer Inc.'s report on Wednesday.
Bank of America Corp. , Bank of New York Co. , Merck & Co. , General Motors Corp. and Continental Airlines Inc. are among the companies on deck for Thursday.
Rounding out the week will be reports from 3M Co. , Ford Motor Co. , Wyeth and RadioShack Corp. on Friday. This story was supplied by MarketWatch. For further information see www.marketwatch.com.