The Coming Week: Fighting Negativity

A barrage of earnings reports and two days of congressional testimony from Federal Reserve Chairman Alan Greenspan will keep investors busy in the coming week. But if corporate earnings and guidance come in mixed -- much as they did the past week -- the major indices could be in for another week of drifting.

"Any good news is going to basically be put on the side next week," said Peter Cardillo, chief market analyst at S.W. Bach & Co. "Our market is using every piece of negative news. Even the good news is becoming negative."

Overall, the market "is representative of one thing: the summer doldrums," said Cardillo. He called the market's listlessness a "technical decline which needs to test the lower end of the trading range and successfully bounce" before moving higher.

But it's partially been that lack of attention toward good earnings-related news -- and an intense focus on the poorer aspects of other quarterly reports -- that's been hurting the major indices lately. Dell ( DELL), for example, on Friday raised its second-quarter earnings guidance on Friday, which had followed an upbeat quarterly report from IBM ( IBM) on Thursday.

While those two stocks rose on Friday, the Nasdaq closed Friday down 1.6% at 1,883.15, a two-month low. The Dow Jones Industrial Average was down 0.2% at 10,139.78, and the S&P 500 lost 0.5% to 1,101.4.

Dell's and IBM's announcements contrasted with negative news earlier in the week from Nokia ( NOK), which lowered its third-quarter profit target, and from Intel ( INTC), which lowered its outlook on gross margins in 2004.

Those announcements helped all the major indices extend their losing streaks for the week, with the Dow down 0.7% on its fourth losing week in a row, the S&P down 1% on its fifth week in a row, and the Nasdaq down 3.2% for the third week. All three are down on the year, too, with the Dow off 3%, the S&P down 0.9%, and the Nasdaq down 6%.

Unfortunately, the Nasdaq's decline toward a year low is something Cardillo doesn't expect to change much next week, considering the amount of earnings to be released and the market's so-so reaction to reports so far. "The technicals of the market point for the market to retest the low ends of the trading ranges," he said.

On top of the overall focus on negative earnings news, the market has a tendency to weigh the earnings of tech stocks more heavily than other sectors, said Daniel Morgan, senior portfolio manager at Synovus Investment Advisors. "The tech sector is 18% of the market ... yet people always seem to gauge the overall earnings seasons just on tech," he said.

Nevertheless, it will be another tech-heavy reporting week with big names such as 3M ( MMM) on Monday, and Motorola ( MOT), Sun Microsystems ( SUNW), EMC ( EMC) and Texas Instruments ( TXN) on Tuesday.

On Wednesday, Kulicke & Soffa ( KLIC), Nextel ( NXTL) and Sprint ( FON) will report. DoubleClick ( DCLK) and SAP ( SAP) will report Thursday.

Despite the focus so far on lower guidance from the tech sector, Morgan looked on the bright side. "I'm just happy that we're adding positive earnings growth and revenue growth in the tech sector as a whole," he said, in comparison to 2003.

Meanwhile, investors also will be looking for clues as to the Fed's plan on another interest rate increase, with most analysts calling for another eventual 25 basis-point increase.

Greenspan will deliver his semiannual testimony before the Senate Banking Committee on the state economy Tuesday at 2:30 p.m. EDT. The testimony continues before the House Financial Services Committee on Wednesday at 10 a.m. EDT.

Cardillo thinks the market also will be looking for signs that inflation and energy prices are a worry. "Energy prices constantly make headlines. It does appear that we're in a very nervous market," he said.

Morgan expects Greenspan doesn't have enough ammunition to discuss an imminent rate hike next week. "I'm getting the impression after that number we had for new job growth in June, it threw a stick in the spokes in terms of everyone looking at an accelerating economy," he said.

Earnings reports from the airline and health care sectors also will dominate much of next week. Delta Air Lines ( DAL) reports on Monday, Continental ( CAL) on Tuesday, America West ( AWA) and SkyWest ( SKYW) on Wednesday, and Jet Blue ( JBLU) and Alaska Airlines ( ALK) on Thursday.

Heath care stocks scheduled to report include: Boston Scientific ( BSX) on Monday, ImClone ( IMCL) on Tuesday, Pfizer ( PFE), Wyeth ( WYE) and Schering-Plough ( SGP) on Wednesday and AstraZeneca ( AZN) and Eli Lilly ( LLY) on Thursday.

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