Signs of an improving economy may have dashed hopes for an interest-rate cut, but the potential for better profits may whet the appetite of stock market investors.
If corporations signal that business conditions are looking better for the rest of the year, analysts probably will ratchet up earnings forecasts for the second half.
"Those earnings are going to come in better than we thought, we just don't know by how much," said Carol R. Miller, senior vice president and senior portfolio manager at Federated Investors in Pittsburgh.
The latest data from Reuters Estimates has analysts forecasting a rise of 4.6 percent year-over-year for Standard & Poor's 500 earnings in the third quarter, and 8.4 percent in the fourth quarter.
With the end of the second quarter just two weeks away, earnings may well be on the minds of stock market investors in a week that is very light on economic data.
While stocks have been bouncing back from their recent drubbing, bond yields have remained above 5 percent. Bond yields and bond prices move in the opposite direction.
Bonds were spooked by concerns about inflation heating up, but two reports this week showed core producer prices and core consumer prices behaving well. In fact, the core Consumer Price Index, which excludes volatile food and energy prices, was up by a less-than-expected 0.1 percent in May.
While bond yields have remained above 5.1 percent, stocks have been on the rebound.
For the week, the Dow Jones industrial average gained 1.6 percent, the broad Standard & Poor's 500 index rose 1.7 percent, and the Nasdaq Composite Index climbed 2.1 percent. Stocks scored big gains on Wednesday after the government reported unexpectedly strong retail sales for May.
For the year so far, the Dow is up 9.44 percent, the S&P 500 is up 8.08 percent and the Nasdaq is up 8.75 percent.
HOUSING DATA LOOMS
Data in the coming week includes a couple of reports on housing, certainly an area that has been a major concern to Wall Street as activity remains depressed and stocks of home builders suffer.
On Monday, the National Association of Home Builders is set to report its NAHB/Wells Fargo Housing Market index, which measures confidence of home builders. The June reading is expected to come in at 30, unchanged from May, according to the median forecast of economists surveyed by Reuters.
On Tuesday, the Commerce Department issues data on home construction and building permits for May. The survey shows housing starts falling to an annual pace of 1.480 million units from 1.528 million in April.
Building permits are expected to pick up a bit to an annual pace of 1.471 million units from a revised 1.457 million for April.
Miller said weak housing numbers are already factored into analysts' economic models.
"They're not going to be good and we all know that," she said.
Thursday brings a report on leading economic indicators and another on regional manufacturing activity, as well as weekly jobless claims. The Conference Board, a private research group, is expected to report a 0.3 percent increase in the index of leading U.S. economic indicators for May, after a drop of 0.5 percent in April.
The Philadelphia Federal Reserve Bank will report on its index of factory activity in the U.S. Mid-Atlantic region. The index is expected to rise to 7.0 in June from 4.2 in May.
Readings above zero indicate growth in the manufacturing sector. The index has been above zero for five consecutive months.
CIRCUIT CITY, BEST BUY EARNINGS DUE
The week's calendar of corporate earnings remains light until the second quarter ends on June 30. Highlights this week include a couple of reports from big electronics retailers. Best Buy Co. Inc. is scheduled to report results on Tuesday and the quarterly numbers from Circuit City Stores Inc. are due on Wednesday.
Best Buy is expected to report higher earnings compared with a year earlier, while Circuit City is expected to report a loss. Circuit City, in the midst of a turnaround effort, recently announced a reduction in its headquarters staff and the redeployment of store managers.
FedEx Corp. , the parent of FedEx Express Corp., the world's largest express delivery business, and investment bank Morgan Stanley are set to report earnings on Wednesday as well.
In addition to the usual menu of economic statistics and corporate announcements, investors will be watching for deal activity, particularly those where the buyers are the private equity firms that have emerged as big players.
J.J. Burns, president and founder of wealth management firm J.J. Burns & Co. LLC in Melville, New York, notes that an effort is under way in the U.S. Senate to raise the tax rate for private equity firms that go public.
"We could see some pauses in the market" if anything happens to slow down the number of deals, Burns said.
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