Wall Street eyes second wind from improving earnings

       The US stock market is set to continue its winning ways this week as earnings season momentum builds. The reporting period is off to a strong start, but this week will be crucial to hopes that real revenue growth has returned, as opposed to earnings surprises resulting mostly from cost-cutting.
       Six Dow components and some major banks are among the companies due to report third-quarter earnings. If earnings continue the trend established by early results, investors may keep buying.
       "There's enough room for upward movement," said analyst Kim Caughey of Fort Pitt Capital Group in Pittsburgh."Not another 60%, but still enough."
       Expectations of economic recovery have fuelled a nearly 60% gain in stocks since the doomsday levels of early March.Last week the Dow gained 3.98% to close on Friday at 9,864.94, its highest in more than a year. The Standard & Poor's 500 rallied 4.51% to 1,071.49, just off a 12-month high, while the Nasdaq composite gained 4.45% to 2,139.28.
       But the breathtaking rally has some analysts wondering if the market has too much good news priced in. Analysts'expectations are loftier now, removing one of the catalysts that buoyed the market in the last two reporting periods.
       "The concern is heightened by the fact that analysts have been revising estimates up at one of the most aggressive paces in over a year," said Carmine Grigoli, chief US investment strategist at Mizuho Securities USA in New York."This was not the case in the last two earnings reporting seasons, when the market did so well."
       Despite revisions in various sectors,earnings are expected to fall more than 25% from a year ago, according to data compiled by Thomson Reuters. Arguably,the bar is still low, even if people have already factored this into projections.
       Earnings "should support the market averages where they are and maybe give a minor boost", said strategist Fred Dickson of D.A. Davidson & Co.
       Some of the big names scheduled to report this week are Intel Corp and Johnson & Johnson tomorrow, JPMorgan Chase on Wednesday, Goldman Sachs and IBM on Thursday, and Bank of America and General Electric on Friday.
       Investors will be watching to see if IBM and Intel benefit from the weak dollar as they earn substantial revenue abroad. IBM is expected to post earnings of $2.38 per share on revenue of $23.38 billion, while Intel is forecast to earn 27 cents a share on $9.015 billion in revenue,according to Thomson Reuters surveys.
       Goldman, meanwhile, has continued to increase profits even in tough times,so the others, particularly Bank of America, are better bellwethers. Financials are projected for a 57% increase in earnings from the same period last year,when Lehman Brothers imploded.
       "Banks are always important," Mr Grigoli said,"and investors will be looking for signs about loan losses and how fast they are escalating - and whether profits from banks' traditional business are able to offset those losses."
       The hope is that upside surprises for banks and the broader market will come from improvement in revenues and not just cost-cutting, said Tobias Levkovich,Citigroup's chief US equity strategist.
       Another key driver for the market this week, as in recent ones, will be the dollar.Its weakness (both perceived and real)has lifted the prices of materials, leading in turn to a jump in commodity-related stocks and sector indices.
       Key economic indicators are also on tap. September retail sales are due on Wednesday, with an expectation for a 2.1% drop, according to a Reuters poll.But data last Thursday showed samestore sales for September rose for the first time in more than a year, and the market could get an extra boost if retailers keep up the positive news.
       The Consumer Price Index for September, due on Thursday, is expected to show a 0.2% rise month over month and a yearly decline of 1.4%.