Wall Street took it on the chin over the past week as investors fretted over the impact of inflation, but analysts say the upcoming corporate earnings season may provide a spark for the ailing market.
The Dow Jones Industrial Average skidded 2.6 percent in the week to Friday to 10,292.31 while the broader Standard and Poor's 500 index slumped 2.7 percent to 1,195.90. The tech-heavy NASDAQ composite tumbled 2.85 percent in the week to end at 2,090.35.
The rocky week on Wall Street was highlighted by fears of surging inflation and high energy prices filtering into the overall economy. Stoking those fears were a series of comments from Federal Reserve members suggesting inflation is their main concern, and that the central bank is prepared to fight inflation.
Byron Wien at Morgan Stanley said investors up to now have been able to shake off hurricanes Katrina and Rita "because the market has shown a remarkable ability to come back from past disasters."
But he said there are now "some disturbing trends in inflation and productivity. That's why the Fed may have acted in September, and that's why they may keep tightening through year-end. It's also why I don't expect the overall market to make much progress between now and Christmas."
Others say the inflation fears are exaggerated and that the market may get a lift from the corporate earnings season that appears promising.
"Inflation fears persist and may continue to roil the stock market. There is, however, no hard data yet that inflation has picked up. And, energy prices overall have eased in the past month," said Dick Green at Briefing.com.
"Economic growth is clearly continuing, and profit growth is strong," he said.
Claudia Lokody, economist at Merrill Lynch, said "another stellar quarter looks to be in store" for the profits of the S&P 500 companies, with a consensus forecast calling for 18 percent year-over-year growth.
Even though most of the profit growth is in the energy sector, she said, "it will take major earnings disappointments for overall S&P 500 profit growth to fall below double-digits."
Federated Investments analyst Stephen Auth said that in the current environment, the stock market may be able to post "gains in the mid-to-high, single digits for all of 2005, and into 2006."
The broad market is down about 1.5 percent so far for the year.
"Where stocks are concerned, a slow, steady economy such as we expect allows for earnings growth without igniting inflation fears," he said.
Aluminum giant Alcoa kicks off the main earnings season Monday, with reports due later in the week from Apple Computer and General Electric.
The stock market appeared to regain its footing on Friday with modest gains after data showed US payrolls fell by a much smaller amount than expected last month despite Hurricane Katrina.
The net loss was 35,000 jobs, but analysts said there would have been a gain of 200,000 without the storm -- suggesting the economy was on a strong path and may recover more quickly.
Greg Bush, economist at BMO Financial, said the data puts a more optimistic outlook on the economic recovery from the storms.
"We knew there was a lot of momentum in the economy in the summer, but this makes it appear even stronger," Bush said.
"Most economists were looking for a hurricane impact of minus 300,000 jobs for September. If if we're only down 230,000, that could mean there was more momentum in the summer, and the negative disruption may be less than anticipated. It's a plus for the economy going forward," he said.
Bonds fell over the week. The yield on the 10-year US Treasury bond rose to 4.368 percent from 4.328 percent a week earlier and the yield on the 30-year bond climbed to 4.582 percent against 4.568 percent.
Bond yields and prices move in opposite directions.
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