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US investors hope earnings will offset rate-hike concerns

Wall Street's quarterly reporting season moves into top gear next week with investors hoping that robust earnings will offset mounting fears over the outlook for US interest rates.

In this past holiday-shortened week, the major stock indexes were flat or lower as US economic data, rising bond yields and surging oil prices reignited concerns about what the US Federal Reserve intends to do with borrowing costs.

The blue-chip Dow Jones Industrial Average crept up 0.16 percent from a week earlier to 11,137.65. But the tech-rich NASDAQ lost 0.55 percent to 2,326.11.

The broader Standard & Poor's 500 index slipped 0.49 percent over the week to close at 1,289.12 on Thursday.

US markets were closed on Friday for the Easter break.

"There is a general concern on inflation, that's always bad for stocks. That is offsetting the positive outlook on the earnings front, at least for now," Owen Fitzpatrick of Deutsche Bank Private Banking said.

Brent crude futures smashed through US$70 a barrel on Thursday to cap an alarming week on the oil markets, whose panic over Iran's nuclear ambitions fed to an extent through to Wall Street.

But the overriding concern for stock investors was what the oil price surge might do to Fed thinking about US inflation.

On the bond market, the yield on the benchmark 10-year Treasury note rose from 4.96 percent a week earlier to 5.036 percent Thursday, the first time it has surpassed 5 percent since June 2002.

The rise in yields came on news that US retail sales had recovered 0.6 percent last month thanks to unexpected strength in automobile and building materials sales. That only served to stoke inflation fears.

Markets are betting strongly that the Federal Reserve will hike US interest rates again when it next meets next month. But expectations are now rising that the US central bank will increase rates even further in June and beyond.

But not everyone is convinced that Wall Street can therefore anticipate a clear run up.

"In the last month the market moved up despite rising interest rates and despite higher oil prices, focusing instead on the upcoming earnings season," Cantor Fitzgerald analyst Marc Pado said.

"Next week is the bulk of the earnings. So I think what we're going to see is that we bought the rumor of good earnings, we're going to sell on the news when the news goes out," he said.

"And the forward-looking statements that companies are likely to give will probably be restrained given all the negatives that companies see: rising interest rates, rising mortgages, a lot of concern," Pado said.
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