U.S. stocks will edge higher next week

In "USATODAY.com- Money" 14-07-2007, By Kate Gibson, MarketWatch & Polya Lesova, MarketWatch:

NEW YORK (MarketWatch) -- U.S. stocks will edge higher next week, continuing a rally that sent the Dow Jones Industrial Average surging to record highs, as earnings kicks into high-gear with11 blue chips -- including Coca-Cola Co. and Intel Corp. -- slated to report quarterly results.

A weaker dollar and some key economic data, including reports on inflation and housing as well as mergers and acquisition activity, might also further fuel buying interest.

"Earnings season takes off next week in earnest," said Mike Malone, trading analyst at Cowen & Co. "It should be a good week with further gains (in the market) as earnings hit expectations, which I do believe will be the case."

Malone said he will particularly watch out for a number of financial companies posting earnings next week, including Merrill Lynch & Co. [MER] , and JP Morgan Chase & Co. [JPM] .

Both firms' businesses are exposed to credit markets, which were rocked over the past week after ratings agencies downgraded a large number of subprime mortgages.

A weaker dollar, which can help U.S. exports by making them cheaper in overseas markets, as well as boost the overseas profits of multinationals when repatriated into dollars, was credited by many analysts for lifting the market this week.

"The low dollar is attracting foreign investors to American stocks," said Hugh Johnson, chairman of Johnson Illington Advisors "There has been a profound shift in asset preferences: bonds are not an alternative, since interest rates are going higher."

Data might move the dollar

Even with earnings taking center stage, economic data might remain a key focus if it does impact the dollar.

Traders will be looking to U.S. economic reports, including two measures of inflation -- the Producer Prices Index on Tuesday and the Consumer Prices Index on Thursday.

Thursday brings another set of statistics on housing starts, also a potentially market-moving report.

But next week, "earnings news is going to dominate," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank, who estimates above-consensus profits of 7%.

"GE is a good proxy for some of the economically sensitive companies," Fitzpatrick said of General Electric Co. [GE] , which on Friday reported a 10% hike in second-quarter earnings.

Earnings season in full gear

Earnings growth is expected to rise 4.2% in the second quarter, marking the second straight period in which earnings growth falls below 10%, according to Thomson Financial. Up until this year, earnings grew more than 10% for 14 consecutive quarters.

The economy also slowed to 1.7% in the first quarter, but investors remain optimistic that global growth will help multinational companies, which are heavily represented on the Dow Industrials, to continue fueling earnings growth.

"Next week will be the heaviest week in terms of Dow companies that are reporting," said John Butters, senior research analyst at Thomson Financial.

The second week of earnings season will feature Dow components including Coca-Cola [KO] , Intel Corporation [INTC] and Johnson and Johnson [JNJ] on Tuesday.

On Wednesday, JP Morgan Chase [JPM] , United Technologies [UTX] , Altria Group [MO] and Pfizer [PFE] will report.

Honeywell International Inc [HON] and Microsoft Corp. [MSFT] are due to report on Thursday and Citigroup [C] and Caterpillar [CAT] on Friday.

Away from the Dow, Yahoo Inc.'s results [YHOO] will also be closely watched.

There's been a move into technology stocks over the last few weeks because investors think fundamentals have taken a positive turn, said Cowen's Malone.

Next weeks' earnings could either confirm or dash that notion, he said.