Investors enter the coming week wondering how much juice can still be squeezed from Friday's jobs report and how much might still be locked up in coming earnings reports.
The major averages posted solid gains in the week just ended, rebounding from the previous week's losses. The
Dow Jones Industrial Average
advanced 2.8% to 9580, while the
rose 4.7% to 1877. The
closed the week with a 3.4% gain at 1030.
Friday's encouraging unemployment figures were partially responsible for the advances, with the U.S. economy adding jobs for the first time in the past eight months.
"The better-than-expected numbers that spurred the market on Friday could have a spillover effect early into next week, giving bulls more conviction," said Peter Coolidge, portfolio manager at Deltec Asset Management. "This shows the recovery is starting to take effect."
"But there's also another phenomenon: the beginning of third-quarter earnings reports. We'll hear from managers how they are viewing their business, not necessarily how well they did, but how it's picking up, and whether this is a modest recovery or more than that," said Coolidge.
The third-quarter earnings outlook has been better than in past quarters, with 1.7 companies lowering guidance for every one that raised it. That compares to a negative-to-positive ratio of 2.4 in the same quarter last year and 2.0 in the second quarter.
"The preannouncement season has been pretty steady and we haven't seen a major barrage of reductions," said Ken Perkins, research analyst at Thomson First Call. "This is a fairly strong ratio and a very encouraging sign."
The average estimate for third-quarter earnings growth for companies in the S&P 500 is 15.9%, up from 13.5% at the start of the quarter, according to Thomson First Call. That compares to a 9.5% average rise in profits achieved in the second quarter.
But Perkins says many companies could beat those estimates, conceivably boosting the average rise in profits to something closer to 20% for the period.
Actual quarterly reports will start to trickle in this coming week, with results coming from a variety of sectors in the economy. Among the most eagerly awaited readings,
will deliver third-quarter results on Friday. Last week, the conglomerate said it's near to closing a deal to merge NBC with the entertainment assets of the French media giant
On Tuesday, soft-drink giant
releases its earnings before the opening bell, followed by aluminum maker
and chip designer
after the market closes.
reports its quarterly earnings on Wednesday, along with biotech concern
and Internet media company
. Those will be followed by network infrastructure provider
Investors will be watching weekly jobless claims on Thursday for a confirmation of last week's favorable unemployment figures. Initial claims are expected to have dropped to 390,000 in the week ended Oct. 4, from 399,000 the previous week. On Friday, the Labor Department said the economy added 57,000 jobs in September, with the jobless rate holding steady at 6.1%.
"The 57,000 rise might not be significant, but it is a gain and that's important," said Chris Low, chief economist at FTN Financial, a subsidiary of First Tennessee Bank. "It means that companies are hiring because they have fixed their balance sheets and are more confident about their earnings prospects."
"The improvement we've seen in corporate profits and spending is clear evidence that the Iraq war caused the recessive environment earlier in the year and that now we are moving back toward the established trend of recovery, with GDP widely expected to rise by more than 4% in the third quarter," Low added.
On Friday, the government reports its producer price index for September, which is forecast to have risen at a more modest pace than in the previous month. On the same day, the trade gap figures will be released. On Tuesday, economists are calling for a flat reading on consumer credit at $5.5 billion in August, followed by a 0.2% rise in wholesale inventories for the month on Wednesday.
The economic data will also be a focus of the bond market after last week's drastic swings in the price and yield of the benchmark 10-year note. Bonds posted the biggest decline in almost two months Friday, losing 1 21/32 to 100 13/32, with the yield rising to 4.2%.