Stocks to track earnings and costs

The start of the third-quarter earnings reporting season takes centre stage for US stock investors this week and what remains a robust profit picture could provide stocks a much needed lift from October's dismal beginning.

Earnings for companies in the Standard & Poor's 500 Index are expected to have risen by nearly 15 per cent from a year ago, according to Reuters Estimates, an expectation that has not been dimmed by the impact of recent hurricanes on the US Gulf Coast.

Among major companies scheduled to report earnings this week are Dow components Alcoa Inc., the world's largest aluminum producer, and General Electric Co., which is generally considered a barometer of US economic strength. Jeffrey Immelt, GE's chief executive, said he was bullish about the economy, calling it "pretty darn good".

Apple Computer Inc. reports its fiscal fourth-quarter results tomorrow.

"The equity market is going to begin focusing more on corporate earnings and may even focus on the positive benefits of a little bit of economic activity," said Michael Strauss, chief operating officer and chief economist of Wilton, Connecticut-based Communfund.

But with Federal Reserve officials increasingly warning about the potential for higher inflation, strategists also expect investors to be on the lookout for economic data that paints a clearer view about the suspected price buildups after the recent devastating hurricanes.

Mr Strauss added that any comments companies make on costs and pricing would be closely watched since in this week's inflation numbers "we're going to see the hiccup in energy".

He said airlines are trying to raise prices as are some of the shipping companies. There are also steel price pressures and a number of other building price pressures because of the post-hurricane rebuilding.

"The Fed is a little bit uncomfortable with that," Mr Strauss said.

Among key data for this week is the government's release of its update on consumer price inflation for September on Friday, along with retail sales. On the same day, the University of Michigan is scheduled to release its preliminary consumer sentiment survey for October.

According to a Reuters poll of economists, the US consumer price index is forecast to have risen by 0.9 per cent in September, compared with a 0.5 per cent gain in August. But stripping out food and energy, the core CPI is expected to have gone up 0.2 per cent in September from 0.1 per cent in August. (Reuters)

Today, US bond markets will be closed for the Columbus Day holiday but the stock markets will be open.

Weston Boone, vice president of listed trading at Legg Mason Wood Walker in Baltimore, said he expected the market to tread cautiously as earnings begin trickling in.

"I would not be surprised to see continued weakness in the market as we head into the earnings season," he said.

"Sentiment on the Street is that the continued high costs of energy - gas at the pumps, home heating oil, natural gas - would not bode well for the short term," he said.

Last week, the three major US stock indexes skidded to multiple-month lows, buffeted in part by a string of hawkish remarks about inflation prospects from Fed officials even as crude oil prices dipped to their lowest levels in two months.

For the week, the S&P 500 fell 2.7 per cent, its worst performance since the week ending April 17. The blue-chip Dow Jones industrial average dropped 2.6 per cent, its worst run since the week ending June 26. And the Nasdaq slid 2.8 per cent, its worst performance since the week ending April 17.

"What's going to drive things over the next several weeks is how third-quarter earnings come out," said Hans Olsen, chief investment officer at Bingham Legg Advisers in Boston.

"My sense is that the high oil prices we've sustained throughout this year are beginning to take hold in the operating costs of a wider swath of US companies."

Tomorrow, the Federal Reserve will release the minutes of the September 20 meeting of the rate-setting Federal Open Market Committee. At that September meeting, the FOMC raised the benchmark fed funds rate for an 11th straight time by a quarter percentage point to 3.75 per cent.