The Coming Week: One Eye on Earnings, the Other on Al

Entering earnings season's busiest week, there's plenty to digest -- and fear -- including Greenspan.
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Not so long ago, there was plenty of fear and trepidation about second-quarter earnings. With the economy slowing, investors worried the numbers might not be up to snuff. Fanning the fears: earnings warnings from a number of high-profile companies, the last of which, Computer Associates (CA) - Get Report came less than two weeks ago.

It did not matter that there were fewer warnings than usual -- something that generally portends a pretty good earnings season. So long as those headlines kept trooping by, investor confidence would be hurt. Once warnings started tapering off and earnings started trickling in, however, fear began giving way to optimism. As we head into the coming week, and the heart of earnings season, there's a good chance the good feelings will continue to wax.

Earnings have looked pretty good so far. A bit more than 15% of the companies in the

S&P 500 have reported so far, and about 70% of those beat consensus estimates, according to

I/B/E/S

. It is very likely that S&P 500 company earnings will grow by more than the 17%, analysts are forecasting; they may even make it up to 20% year-on-year growth, said I/B/E/S equity strategist Joseph Kalinowski.

That's a pretty heady clip. And it looks good enough to keep concerns about third-quarter earnings -- which don't look like they'll be nearly as good -- on the back burner. Recent data suggesting some cooling in the economy hasn't hurt either -- economists have been busily lowering the odds of a rate hike at the

Federal Open Market Committee meeting in late August.

Not everyone is convinced that there has been enough of a cool-down to keep the

Fed out of the market's hair, however.

"The fact is, as many signs there are of the economy slowing, there are signs of the economy continuing to do well," said Larry Rice, chief investment strategist at

Josephthal

. So is Rice selling? Oh, please.

"The other side of the equation is we're in the midst of the summer rally and we're still weeks away from the Fed meeting," he said. "I want to sell this building exuberance. Sometime over the next couple of weeks, I'm going to start easing into the market to sell."

There definitely is building enthusiasm, if not outright exuberance, for the market lately. Technically, the market is in nice shape.

"We broke out of a 5 1/2-week trading range," noted Todd Clark, head of listed trading at

W.R. Hambrecht

. "I wouldn't be surprised to see 4500 on the

Nasdaq before the run is over."

But Clark also notes that there are a couple of things that might hamper the market's upward course in the coming week.

"Obviously, earnings are important, but there are other things that are going to be important," he said. "Tuesday, the

CPI

, Wednesday, the

Humphrey-Hawkins testimony."

With luck, the June Consumer Price Index won't carry any surprises. Though energy prices will likely lift the overall number, its core reading (which excludes energy and food) is expected to come in fairly tame.

Humphrey-Hawkins -- the twice-yearly testimony on the state of the economy that Fed Chairman

Alan Greenspan gives to Congress -- is something worth worrying over. In the past three years, Humphrey-Hawkins has snapped the summer rally twice.

Doesn't mean that he'll do it again. But the mere fact that he could do it again -- redirect market attention to tight labor markets and/or voice concerns of easing financial conditions -- may be enough to constrain the market in the first part of the week.