The Coming Week: Holding Ground

After a so-so earnings season, analysts hope the averages can keep from falling further.
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Investors may have a hard time next week getting pumped up about stocks, which are deflated by lackluster first-quarter earnings results and concerns about the strength of an economic recovery.

"The psychology has shifted from hopes for great earnings a few weeks ago to a consensus that the recovery is sluggish," said Jim Volk, co-director of institutional trading at D.A. Davidson.

In the week ended April 26, the

Dow Jones Industrial Average closed down 346 points, or 3.4%, to 9,910.72, while the

Nasdaq Composite finished off 133 points, or 7.4%, to 1663.9, as corporations failed to confirm a robust recovery is under way in their first-quarter results.

"Until the psychology changes," said Volk, "the market is not going to move much higher."

Maintaining

Some experts are concerned that the market will be unable to sustain its current levels. "The real big question is whether or not we will test the September lows," said Matt Johnson, head of cash trading at Lehman Brothers, "since there is no real positive outlook for corporate America."

So far, first-quarter earnings are down 12.2% from the year-ago period, according to Thomson Financial/First Call, though most companies have managed to beat drastically reduced expectations.

"We knew the first quarter would be a wash," said Joseph Kalinowski, a strategist at Thomson Financial/First Call. "People are optimistic about the second, but hope isn't building too quickly."

Next week,

Dynegy

(DYN)

,

Calpine

(CPN)

and

Qwest

(Q)

will report earnings. All three have been hammered by debt and accounting concerns.

Found a Job

As for economic news, the biggest release will be the monthly

employment report on Friday.

"Of all indicators, this is the No. 1 thing the

Fed is watching," said Ethan Harris, an economist at Lehman Brothers. "They will not raise rates until the unemployment rate begins to come down."

The consensus estimate is calling for job growth of 60,000 in April, compared with 58,000 in March, while economists predict the unemployment rate will rise to 5.8% in April from 5.7% in March.

Also next week, the Conference Board will weigh in Tuesday with the results of its

consumer confidence survey. Though consumers have been resilient, the

University of Michigan's index fell more than expected in April amid concerns about the economic recovery and the conflict in the Middle East.

On Wednesday the Institute for Supply Management will release its

manufacturing index for April, which is expected to fall to 54.6 from 55.6 in March. A reading above 50 indicates expansion. Hardest hit in the recession that began in early 2001, the manufacturing sector has lately shown improvement.

"We'll continue to see expansion in manufacturing activity in the index," said John Lonski, an economist at Moody's Investors Service. "But it will come down from its very high reading in March."