Markets: News  

Next week focus is on Citi, Google, 'fiscal cliff'

SAN FRANCISCO (MarketWatch) -- Earnings outlooks as U.S. companies approach the so-called "fiscal cliff" are likely to gain more attention from investors in the coming week than the quarterly results themselves, according to analysts.

With a third of the Dow Jones Industrial Average (DJIA) and more than 80 S&P 500 Index (SPX) companies reporting in the coming week, most analysts are going into the second-quarter earnings season with lowered expectations and an eye on the next quarter.

"Markets would rather see the guidance," said John Canally, an investment strategist at LPL Financial. "Next week, you want to see improved or unchanged."

Therein lies the challenge, however, with U.S. economic growth hitting more speed bumps and similar slowdowns in Europe and China causing revenue to dry up at multinationals.

China reported its economy expanded by 7.6% in the second quarter, its weakest rate of growth in three years. Read more on China.

A weaker euro relative to the dollar compounded with European consumers tightening belts also puts a crimp in international revenue for U.S. companies. Read how the strong dollar is hurting U.S. bottom lines.

On Friday, equity markets reacted favorably to earnings from J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) . The gains Friday were enough to give both the Dow (DJIA) and the S&P 500 Index (SPX) slight gains on the week and break multi-session losing streaks. Read more on stocks Friday.

Of the 30 S&P 500 companies reporting earnings in the past week, 70% have reported earnings above consensus estimates, according to John Butters, senior earnings analyst at FactSet.

Two things to look out for in the coming earnings week are how globally exposed companies are dealing with uncertainty out of Europe for the rest of the year, and whether more chief executives will start addressing the looming U.S. fiscal cliff, said Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC.

Luschini said investors want to hear more from CEOs on how they are dealing with the domestic uncertainties of possible tax increases and government spending cuts now, and how that is affecting their investment and hiring decisions.

The strategist referred to a Financial Times opinion piece written by Honeywell CEO David Cote urging more business leaders pressure Washington to take more definitive actions on curbing growing U.S. debt before the bond market does. Honeywell reports quarterly earnings on Wednesday.

On Monday, earnings from Citigroup Inc. (C) and Gannett Co. (GCI) are scheduled.

The following day Johnson & Johnson Inc. (JNJ) , Coca-Cola Co. (KO) , Goldman Sachs Group Inc. (GS) , Intel Corp. (INTC) , and Yahoo Inc. (YHOO) report.

On Wednesday comes quarterly results from Bank of America Corp. (BAC) , American Express Co. (AXP) , IBM (IBM) , Abbott Laboratories(ABT) , Yum Brands Inc. (YUM) , and Qualcomm Inc. (QCOM)

Then, on Thursday, Microsoft Corp. (MSFT) and Textron Inc. (TXT) report, along with Google Inc. (GOOG)

Wrapping up the week, General Electric Co. (GE) and Schlumberger Ltd. (SLB) report on Friday.

Bernanke, economic indicators in play

Federal Reserve Chairman Ben Bernanke may sway markets in the coming week during his semi-annual monetary policy report to Congress. On Tuesday, Bernanke testifies to the Senate Banking Committee on Tuesday and to the House Financial Services panel on Wednesday.

Expect the central banker to venture into making policy pronouncements to Congress, said Canally.

"I see Bernanke saying, 'Don't tell me how to do my job while I tell you how to do yours,'" Canally said, explaining Bernanke will likely press the point that unless Congress breaks its deadlock and moves to fix the fiscal cliff, it will matter little regarding what actions the Fed takes or doesn't take.

"All eyes are on Washington because policy decisions are more of a driver of earnings than individual companies," said Scott Armiger, manager of the $500 million Christiana Trust at Wilmington Savings Fund Society.

In addition to events out of Washington, June retail sales data on Monday will be of particular interest to Armiger. See MarketWatch's economic calendar.

"We care about retail because the consumer is two-thirds of the economy, and they seem to be struggling a bit," Armiger said.

Growth in retail sales may not necessarily translate into good news for the economy if one considers it's being financed by more debt, Armiger said. Earlier in the week, the Federal Reserve reported that U.S. consumers increased their debt in May by $17.1 billion, the biggest increase since December, and the ninth-straight monthly gain.

Other U.S. indicators during the week include the July Empire State index on Monday and Philadelphia Fed report on Thursday, the June consumer price index and the July home builders index on Tuesday, and the Beige Book on Wednesday.

Overseas, Spain and France are scheduled to hold bond auctions on Thursday in advance of a Friday meeting of European officials to hammer out the final details of the Spanish bank bailout. While expectations are low for the meeting, a best-case scenario is that there are no major stumbles out of Spain or France in advance of the meeting, Canally said.