A confluence of catalysts could move the market in the coming week, including the Democratic National Convention. Analysts hope a terror-free week in Boston can help cure the market's recent bout of paranoia. Another slew of earnings and some big economic reports, including the advanced reading of second-quarter gross domestic product, will keep investors busy. But it's what's going on outside the market that will continue to set the tone. "We have outside forces that seem to be controlling what investors do," said Bernadette Murphy, chief market analyst at Kimelman & Baird. "The concern seems to be that there was a slowdown
in the recovery in June. ... That's part of why the market is shivering." Along with usual concerns about oil and Iraq, Murphy thinks investors are worried about possible terrorist attacks at three major upcoming events -- the first being the Democratic National Convention, which starts in Boston on Monday and lasts through Thursday. "The review of 9/11 has heightened sensitivity. It's dominating the market," Murphy said. As a result, the sharp declines of the broader indices don't "seem to have anything to do with earnings or the economy." If no terrorism-related events occur at the DNC, Murphy said, terrorism fears will move toward the Olympics in Greece, which begin Aug. 13, and then toward the Republican National Convention in New York, beginning Aug. 30. Cary Nordan, a fund manager at BB&T Asset Management, acknowledged the terrorism concerns but said an attack at the DNC is unlikely. As a result, he thinks the market will bounce nicely. "Getting through next week in general is going to prove some relief," he said, also partly because July will be over. "The market has taken on a lot of water in the month of July, so I don't expect August to do a lot of damage."
The Dow fell for its fifth week in a row, down about 1.7% and closing below 10,000 Friday for the first time since May. The S&P 500 was down about 1.4%, its sixth down week, and is now sitting two points away from its lowest close in the year. The Nasdaq has been down for four straight weeks, dropping 1.8% in the just-completed week. Many of the positive earnings reports in the past couple weeks have been unable to spur any buying interest. "The market seems to be ignoring earnings, much to everyone's chagrin," Murphy said. Yet, second-quarter earnings so far are up 29% from a year ago, the fourth straight 20% or higher quarter, said David Rosenberg, chief North American economist at Merrill Lynch. That's "a feat that has happened only twice in the past 25 years," he said in a Friday note. As the market is wont to do, it is looking ahead, focusing on the recently announced barrage of weak corporate earnings guidance as well as estimates that third-quarter earnings will be up just 14.9% with fourth-quarter profit up 15.6%. "Guidance has been the key, otherwise the market would likely have rallied," said Rosenberg. Key earnings next week will be released from BellSouth ( BLS) on Monday, Verizon ( VZ) and T. Rowe Price ( TROW) on Tuesday, Comcast ( CMCSA), Boeing ( BA) and Time Warner ( TWX) on Wednesday, and Bristol-Myers Squibb ( BMY), Georgia-Pacific ( GP), Ingram Micro ( IM) and Siemens AG ( SI) on Thursday. On the economic front, the advance reading second-quarter gross domestic product, set to be released on Friday, will give the market a better indication of whether Fed Chairman Alan Greenspan was on track with his recent comments to Congress. Analysts are expecting a 3.7% rise in second-quarter GDP vs. 3.9% in the first quarter. Another gauge of the economy will be reports on existing and new home sales, released Monday and Tuesday, respectively. Economists think 6.67 million existing homes were sold in June, down from 6.8 million in May. The forecast for new home sales is 1.275 million, which would be down from 1.369 million in May.
"The market is sensitive to economic data right now," said Nordan. "That will be the wind that pushes us in one director or the other. If we don't see improvement over the next few weeks and over August, the market will start going sour a bit more." Meanwhile, two consumer surveys will be also be released, both of which are expected to remain at multimonth highs. Tuesday's reading of July consumer confidence from the Conference Board is expected to be 102, up from June's reading of 101.9, which was the highest reading since June 2002. Friday's revised reading of July consumer sentiment is expected to rise slightly to 96.2, from a prior reading of 96, which would be its highest since January's spike to 103.8. January had the first reading over 100 since November 2000. A recent survey conducted by Big Research found that higher consumer confidence stems in part from the improving employment picture, as shoppers are less worried about being laid off. Indeed, higher oil prices contributed to weak market sentiment on Friday. U.S. crude oil prices were around $41.61 a barrel, approaching their June high of $42.33. Look for earnings in the energy sector from Amerada Hess ( AHC), Conoco Phillips ( COP) and Dynegy ( DYN) on Wednesday. Duke Energy ( DUK) and Exxon Mobile ( XOM) report on Thursday, and then Anadarko Petroleum ( APC) and Chevron Texaco ( CVX) on Friday.