The month of July comes to a close Friday, but not before the earnings onslaught continues with another rush of quarterly reports scheduled to hit. As the major U.S. averages surged to their best levels of the year in the past week, investors might be expected to book some profits. Yet, with another spate of reports due, market analysts expect money to stay off the sidelines.
Earnings were the main catalyst behind last week's strong rally, with the Dow Jones Industrial Average rising 4% after 12 of its 30 components reported quarterly results over the last five sessions. On Thursday, the blue-chip average set a new closing high for 2009, finishing at its best levels since November. The S&P 500, meanwhile, jumped 4.1% for the week after 143 of its 500 constituents posted earnings. The Nasdaq notched a 12-session win streak before that was snapped Friday. During the coming week, though, only five of the Dow's components will report quarterly results: Disney ( DIS), Exxon Mobil ( XOM), Chevron ( CVX), Travelers ( TRV) and Verizon ( VZ). While the number of Dow components reporting over the next five sessions has dwindled from last week, more than 140 constituents of the S&P 500 are set to report, exceeding last week's total. For that reason, Art Hogan, Jefferies' chief market strategist, says the market will continue to trade off earnings. "It will be a catalyst-filled week, that's for sure," says Hogan. "There seems to be more momentum in the market to the upside rather than the downside. I also think we came into this earnings season positioned in a way that caught them by surprise. Now they're getting squeezed and that will probably stay the same, although not at the same magnitude."
Hogan points out that Microsoft ( MSFT) became the first Dow component to miss the Thomson Reuters average estimate from analysts on Friday, but the index was still able to shrug off that loss and move higher. "It won't be one or two bad reports that will turn us over here," he said. Traders will return from the weekend to quarterly results from former Dow member Honeywell ( HON), RadioShack ( RSH) and Amgen ( AMGN). Tuesday will bring earnings from Coach ( COH), U.S. Steel ( X) and Valero ( VLO), among many others. Those reports will be followed by Time Warner ( TWX), Sprint Nextel ( S) and Visa ( V) on Wednesday. Thursday's session will be headlined by earnings from Motorola ( MOT), Dow Chemical ( DOW), MasterCard ( MA) and DryShips ( DRYS). Meanwhile, Friday will be dominated by utility and energy companies, including Dominion ( D), Constellation Energy ( CEG) and American Electric ( AEP). Of course, many of the earnings reports in the coming week are from what some people consider second-tier companies, which may give traders a reason to pause and bring some money back to the sidelines. Jason Pride, director of research for Haverford Investments, isn't convinced. Instead, he considers equities appealing with more room for upside moves. "Despite the strong rally, stocks still remain attractively priced on both normalized earnings and dividend yields," Pride wrote in a research note. "The combination of attractive valuations and an acceleration in earnings growth make equities appealing, even after the recent market rally." Ryan Detrick, senior technical strategist with Schaeffer's Investment Research, agrees there may be more upside to go, although he's not sure how much room is left on the S&P 500.
"Technically, the breakout above 950 on the S&P is very impressive," Detrick said. "This area had held as resistance since early January and now we could see a massive move higher, as investors move cash to the market for fear of missing the boat. There's a good chance that 1000 will make a logical level of resistance. Besides the fact this is a nice round number, it is also a 50% move off of the March lows." Away from earnings, investors will be greeted by an economic report each day of the week, quite a contrast to last week's bare economic docket. The first report will come Monday at 10 a.m. EDT, when the Census Bureau reports new-home sales for June. Economists, on average, expect sales to climb to 355,000 from 342,000 in May. Tuesday's report on consumer confidence, due at 9 a.m. EDT, is expected to show that the index worsened to a reading of 48.7 in July, down from 49.3 in June. At the same time, the S&P/Case-Shiller home price index should improve slightly to a decline of 17.8% from April's 18.1% slide. The Federal Reserve's Beige Book report, which examines the conditions of the central bank's 12 districts, will make headlines after its 2 p.m. EDT release. Before that, the Census Bureau will release the June read on durable goods orders at 8:30 a.m. EDT. Economists anticipate a decline of 0.5% after a 1.8% rise in May. Excluding transportation, June orders should rise 0.1%, down from a 1.1% climb the month before.
The lone report Thursday will come from the Labor Department, which is expected to show that weekly initial jobless claims ramped up to 585,000 from 554,000. Friday, the final day of the week and month, will bring the latest read on gross domestic product for the second quarter. The advance reading, due at 8:30 a.m. EDT, is expected to show that GDP fell by 1.5%, an improvement from the 5.5% decline in the first quarter but still a negative number. At 9:45 a.m. EDT Friday, the Chicago Purchasing Managers index will be released, with economists expecting an improvement to a reading of 42 in July from 39.9 in June. "If you combine both the pace of the earnings releases and the magnitude of economic data that we're getting, it's not hard to say that we have a week that could be more supportive," said Jefferies' Hogan. "Unless there's a big variance in the economic data that's reported and what's estimated, it will all take a back seat to the company-by-company releases and the overall sentiment about earnings."