The Coming Week: An Earnings Inferno

Another hectic earnings schedule and the initial print of first-quarter GDP will dominate the headlines on Wall Street next week.

So far, it looks like the

first quarter has been pretty good to corporate America, with most companies meeting or beating estimates. But investors are aware that companies are beating lowered estimates, and blowout surprises have so far been scarce, and overall market gains are muted. Last week, the first big week of the reporting season, the

S&P 500 rose 1.2%, the blue-chip

Dow Jones Industrial Average gained 1.3%, and the

Nasdaq Composite Index rose 2.6%.

Jay Meagrow, head of institutional trading at McDonald, says he expects stocks to continue moving higher. "We're pretty much range-bound right now, but the market seems to want to trend slightly higher," he said. "Earnings have been good, but the numbers have come down enough that companies can make them. The gains are modest for that very same reason," he said.

Before the Flood

Some 163 S&P 500 companies report earnings next week, as do seven of the 30 Dow components, including telecommunications giant

AT&T

(T) - Get Report

and media powerhouse

Disney

(DIS) - Get Report

. Already, 20 Dow components have reported.

Sectors with the busiest reporting schedules next week include utilities, which should have mixed reports because of warm weather in the first quarter, and restaurants, said Meagrow. Meanwhile, investors will hear from the oil producers and the chemicals sector for the first time.

AT&T also has plenty of company, as several other large telecommunications firms report, including

Ericsson

(ERICY)

,

Verizon

(VZ) - Get Report

,

Qualcomm

(QCOM) - Get Report

and

WorldCom

(WCOM)

.

Shares of all five companies fell Friday as investors worried that a recovery would be long in coming for the sector.

Good news from

Sprint

(FON)

and mobile phone unit

Sprint PCS

(PCS)

early last week was countered Thursday and Friday. Local phone leader

SBC Communications

(SBC)

said it might have trouble meeting its revenue targets, while

Qwest

(Q)

and

Nortel Networks

(NT)

said their businesses are

deteriorating even faster than investors thought.

Much Ado About GDP

A first print of first-quarter GDP, scheduled for Friday release, is probably the most psychologically important piece of economic data for the stock market next week. Fourth-quarter GDP came in surprisingly strong, and investors are anxious to see if the pace was maintained at the start of 2002. Consensus estimates call for first-quarter growth of 5%, far outstripping the fourth quarter's 1.7%. That would be the highest level since the fourth quarter of 1999.

That does not, however, mean growth is back in spades, says Banc One Capital Markets economist Anthony Karydakis. Some 80% or more of the GDP increase is expected to represent a rebound in inventories, with little contribution from consumer or corporate spending. After warehouse shelves were wiped clean in the fourth quarter of last year -- inventories declined at a record $119.3 billion annual rate -- corporate America has been busy restocking, says Karydakis, who expects inventories grew as much as $100 billion in the first quarter. That would contribute 4 to 4.5 percentage points of growth to GDP, according to his calculations.

"The story should be that the lion's share of GDP growth was inventory rebuilding," he said.

Karydakis said there might be some surprises lurking in the consumer-spending component of GDP, though not of the magnitude seen in the fourth quarter. Driven by an auto-buying frenzy, consumer spending surged 6.1% in the fourth quarter, helping to push GDP into positive territory.

So far, monthly retail sales reports have indicated a slight slowdown in consumer spending in the first quarter. But unlike the GDP components, the monthly reports are calculated in nominal terms and don't account for price fluctuations. They also leave out foreign car sales.

Other key data scheduled for release next week include March durable goods orders, out Wednesday, and the first-quarter employment cost index. Durable goods orders, which measure orders for goods made to last for several years, such as washing machines, is expected to show a 0.5% gain for March, down from a 1.8% increase the previous month. The employment cost index, which measures the change in the cost of labor, based on both salaries and employer costs for employee benefits, is seen posting a 0.9% rise, on par with the previous quarter.