U.S. stock market: tug-of-war between earnings and data

Alert Email Print

By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) -- The U.S. stock market is likely to continue pulling risk on and off the table in the days ahead, with another heavy round of earnings reports in store, along will a full slate of data on the economy, employment in particular.

"We're getting a sharper rebound in earnings than in the economy," said Jim Dunigan, managing executive of investments at PNC Wealth Management.

Of the 336 S&P 500 companies that have reported second-quarter earnings, 75% exceeded expectations, 10% reported earnings in line with analysts' estimates and 15% missed, according to John Butters at Thomson Reuters.

And, while government-induced spending helped companies generate stellar profits, those bulging bottom lines are doing little to create jobs, notes Jack Ablin, chief investment officer at Harris Bank.

The nation's persistently high unemployment rate, the biggest source of worry for those looking for signs of life in the economic recovery, will have Wall Street fixated on Friday's July jobs report, as well as the government's weekly count of those filing for jobless benefits, with that data released the day before.

But the coming days also bring the final peak week of the second-quarter earnings season, with 103 S&P 500 companies and three Dow components scheduled to report results, starting off Monday with eight firms, Humana Inc. /quotes/comstock/13*!hum/quotes/nls/hum (HUM 51.76, +0.91, +1.79%) and Loews Corp. /quotes/comstock/13*!l/quotes/nls/l (L 36.54, +0.15, +0.41%) among them.

'After being driven by macro headlines and all the debate about double-dip, the market is finding some consolidation in earnings.'

Jim Dunigan, PNC Wealth Management

"After being driven by macro headlines and all the debate about double-dip, the market is finding some consolidation in earnings," said Dunigan.

The solace found in corporate profits had Wall Street on Friday finishing on the fence, with the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,453, +66.30, +0.64%) down 1.22 points at 10,465.94, up 0.4% for the week.

The S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,109, +9.72, +0.88%) was perched at 1,101.60, virtually flat on the day and off 0.1% for the week, while the Nasdaq Composite /quotes/comstock/10y!i:comp (COMP 2,248, +18.63, +0.84%) ended at 2,254.70, up 3.01 points for the day and down 0.7% for the week.

The month of July, however, offered a more compelling equities story, with both the Dow and S&P 500 notching their biggest monthly gains in a year and the Nasdaq scoring its best month since March. Read about the return of some confidence to battered markets.

The gains came along with solid second-quarter results. On Friday, estimated share-weighted earnings for the S&P 500 for the second quarter stood at $196.4 billion, above last week's $193.1 billion, according to Butters' data.

A large chunk of those reports come Tuesday, with the calendar listing more than 40 companies, including Pfizer Inc. /quotes/comstock/13*!pfe/quotes/nls/pfe (PFE 16.72, +0.16, +0.97%) , Whole Foods Market Inc. /quotes/comstock/15*!wfmi/quotes/nls/wfmi (WFMI 35.51, +0.24, +0.68%) and Archer Daniels Midland Co. /quotes/comstock/13*!adm/quotes/nls/adm (ADM 31.89, -0.06, -0.19%) .

Prudential Financial Inc. /quotes/comstock/13*!pru/quotes/nls/pru (PRU 54.46, +0.67, +1.25%) and PulteGroup Inc. /quotes/comstock/13*!phm/quotes/nls/phm (PHM 8.74, +0.14, +1.62%) are among the more than 20 companies scheduled to report on Wednesday, while Cigna Corp. /quotes/comstock/13*!ci/quotes/nls/ci (CI 34.01, +0.36, +1.07%) , Kraft Foods Inc. /quotes/comstock/13*!kft/quotes/nls/kft (KFT 30.55, -0.03, -0.09%) and Time Warner Cable Inc. /quotes/comstock/13*!twc/quotes/nls/twc (TWC 55.02, +0.11, +0.20%) are among the roughly same-size group coming Thursday.

On Friday the load lightens, with three energy firms, including Southwestern Energy Co. /quotes/comstock/13*!swn/quotes/nls/swn (SWN 33.38, +0.16, +0.48%) , along with the Washington Post Co. /quotes/comstock/13*!wpo/quotes/nls/wpo (WPO 377.41, +3.73, +1.00%) .

"The economy which is typically fueled by a virtuous cycle of spending, profits and jobs is beginning to wobble; just as the $1 trillion-plus stimulus programs are winding down," noted Ablin on Friday after the Commerce Department reported U.S. economic growth slowed in the second quarter, up 2.4% from the 3.7% growth in the first-quarter.

Dunigan offered a more positive take on U.S. economic growth.

"The good news is the economy is still growing. There is a significant difference than where we were a year and a half ago," said Dunigan.

But the analyst acknowledges that the recovery is not progressing rapidly.

"We're not in the double-dip camp, but we were never in the camp that said we're going to have a robust rebound either," said Dunigan.

The economic challenges faced by the country and state governments is the topic of a talk coming Monday in Charleston, S.C., where Federal Reserve Chairman Ben Bernanke is expected to take questions after delivering written comments.

Wall Street will be on alert for any further hints of quantitative easing from Bernanke after his description of the economic outlook as "unusually uncertain" in his semi-annual address to Congress.

Kate Gibson is a reporter for MarketWatch, based in New York.