This week's flood of corporate earnings reports may help wash away some of the nagging worries about rising interest rates and geopolitical tensions that have battered stocks in recent weeks.
Earlier this month, signs of surprising strength in the job market and hints of inflation stirred up speculation an interest-rate hike by the Federal Reserve could soon be on the way. Bond yields spiked in anticipation of a Fed move, and stocks suffered from concerns that higher borrowing costs could crimp consumer spending.
But when Wall Street kicks off one of the busiest weeks of the earnings season today, investors may be able to shift their focus back to corporate America's quarterly results.
"We've gotten the inflation worries out of the way, and what will happen is there will be more of a focus back on fundamentals," said Edgar Peters, chief investment officer at PanAgora Asset Management.
A tepid batch of economic data and comments from a Fed official on Friday suggesting the Fed is in no hurry to hike rates, further soothed investors' rate fears.
Major market gauges stumbled last week as interest-rate jitters largely overshadowed positive earnings from corporate heavyweights like Texas Instruments and Citigroup. Only the Dow Jones Industrial average ended the week with a gain, rising 0.1 per cent, as investors dashed for traditionally more defensive issues, like drug stocks. The Standard & Poor's 500 index sagged 0.4 per cent, and the Nasdaq Composite Index fell 2.8 per cent.
For at least the past three months, stocks have been mostly drifting sideways, with investors searching for the next big catalyst that will drive the market higher after the stellar gains of 2004. Year to date, the Dow is virtually flat, the S&P 500 is up two per cent, and the Nasdaq Composite is down 0.4 per cent. Corporate America's quarterly results have been coming in, for the most part, at or above Wall Street's forecasts.
Of the 90 companies in the S&P 500 index that have issued their first-quarter scorecards thus far, 76 per cent have surpassed earnings expectations, 14 per cent have met them and 10 per cent have fallen short, according to Reuters Research.
But with the S&P 500 up more than 40 per cent from the 2003 low hit just about one year ago, some investors are hesitant.
"The market wants to be surprised to the upside, and that really is going to be the key going forward as the majority of companies report," said John Lynch, chief market analyst at Evergreen Investment Management Co.
Particularly crucial, Mr Lynch added, will be what corporate managements say about the future:
"It's what they say going forward, how they are projecting the second-quarter and full-year."
About 178 S&P 500 companies are expected to issue results this week, making it one of the most hectic weeks of the reporting period. Wall Street analysts are expecting overall S&P 500 operating earnings to show a gain of 19 per cent for the first quarter, according to earnings tracker Thomson First Call.
Among the marquee technology companies set to report next week are Motorola, Lucent Technologies, eBay, Juniper Networks, Microsoft and PeopleSoft.
It's a big week for drug-sector earnings, with results due from Eli Lilly, Forest Laboratories, Pfizer, MedImmune, Merck & Co. and Schering-Plough.
The financial sector is also in the spotlight. Dow components American Express Co. and J.P. Morgan Chase & Co. have results on tap, plus earnings scorecards are due from some big banking, brokerage and insurance names outside the Dow's blue-chip club - Wachovia, Wells Fargo, Allstate and Charles Schwab.
Coca-Cola and Yum Brands will issue their quarterly earnings, as well.