Quarterly Earnings Season Gets Underway

The start of the third-quarter earnings reporting season takes center stage for U.S. 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% from a year ago, according to Reuters, an expectation that has not been dimmed by the effect of hurricanes Katrina and Rita.

Among major companies scheduled to report earnings in the coming week are Dow components Alcoa Inc., the world’s largest aluminum producer, and General Electric Co., which is generally considered a barometer of U.S. economic strength.

Jeffrey Immelt, GE’s chief executive, said last week that he was bullish about the economy, calling it “pretty darn good.”

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

“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 economist of Wilton, Conn.-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 paint a clearer picture about the suspected price buildups after the hurricanes.

Strauss said any comments that companies make about costs and pricing would be closely watched since “in next week’s inflation numbers, we’re going to see the hiccup in energy.”

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

“The Fed is a little bit uncomfortable with that,” Strauss said.

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

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

Last week, the three major U.S. stock indexes slid to multiple-month lows, buffeted in part by a string of hawkish remarks about inflation from Fed officials even as crude oil prices dipped to their lowest levels in two months. But strong earnings and positive forecasts from corporate America this week could help the stock market regain its footing.

“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 U.S. companies.

“October could be a pretty tough month for the market in light of some earnings disappointments,” Olsen said.

He said that even with better-than-expected September sales from many U.S. retailers, it was still too early to get a clear reading of how U.S. consumers were holding up.

“It looks like we are not going to have a reprieve from higher interest rates,” he said.

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The Week Ahead

Today

* U.S. bond markets closed for the Columbus Day holiday but the stock markets are open.

* Quarterly earnings report expected from Genentech Inc.

Tuesday

* The Federal Reserve releases minutes of the Sept. 20 meeting of the rate-setting Federal Open Market Committee.

* Quarterly earnings report expected from Apple.

Thursday

* The Commerce Department releases its report on September retail sales.

Friday

* The Labor Department reports the consumer price index for September.

* The University of Michigan releases its preliminary consumer sentiment index for October.

* Quarterly earnings report expected from General Electric.