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The Coming Week: Two-Track Mind

Inflation and world violence will continue to overshadow earnings.

Another cascade of earnings from big retail and technology companies in the coming week will probably do little to distract traders from their recent preoccupation with interest rates and world violence.

Solid earnings and guidance have done little to knock the market out of its funk over the last few weeks. Stocks and especially bonds have taken their cue from the economy, particularly two reports last week showing pricing pressure at the producer and consumer levels. Solid earnings have either been ignored, such as in


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case, or used as an excuse to sell, such as in


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case. The latter's report was greeted with a plunge that took the


down 2% Wednesday before a recovery kicked in during the final two hours.

"Macro pressure is overshadowing what is turning into a dynamic first quarter," said Daniel Morgan, an analyst at Noble Financial Group. "If you take away the macro issues, you'd have an enthusiastic market."

The war in Iraq, Morgan said, is eclipsing two months of jobs growth and the conclusion of a blowout earnings quarter, with

S&P 500

earnings up about 25% from a year ago. Meanwhile, the specter of a rate hike has muted the cheer that should've greeted news that U.S. gross domestic product rose 4% in each of the last two quarters.

"The war isn't ending," said Morgan. "Are we going to have 135,000 troops stuck in Iraq for the next three years? And what does that mean for the market and our economy?"

For a third straight week, all three of the main stock market indices closed down, with the

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down 1%, the Nasdaq losing 0.3% and the S&P 500 down 0.7%.

"The market is probably trying to make a bottom," said Peter Cardillo, chief market analyst at S.W. Bach & Co. "The market wants the


to act so that it can be relieved that they are taking action."

The coming week's economic data includes April housing starts and building permits on Tuesday. Analysts are calling for 1.988 million housing starts, which would be a decrease from March's 2.007 million. The consensus estimate for building permits is 1.940 million, compared to 1.976 million in the prior month.

While both numbers are expected to decline from the prior month, Morgan noted that they are still "phenomenal" and show the strength of the housing market. "Everyone keeps saying it can't continue and yet it continues," he said. Housing starts are sitting just below a high set in December.

Tuesday is the big day for earnings, with reports coming from tech companies

Applied Materials

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, and retailers

BJ's Wholesale

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J.C. Penney

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Home Depot

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reports on Monday.

Other economic news includes the leading indicators for April, out Thursday. Analysts are expecting a 0.2% increase compared to a 0.3% rise in March. The May Philadelphia Fed business outlook survey will also be out Thursday and analysts expect a reading of 31.2, which would compare to a 32.5 reading in April.

Rounding out the earnings docket,


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Toys R Us


report Monday;

Saks Fifth Avenue




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report Tuesday; and


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report Thursday.