Earnings will dictate the course of stock markets this week, as corporate America kicks off one of the busiest weeks in its quarterly reporting season.But after a stock market rally that began just over a year ago, companies will have to deliver strong results in order to justify stock prices' hefty gains.
At the same time, Wall Street will also keep a wary eye on the situation in Iraq, where escalating violence has fuelled investor uncertainty and tempered positive sentiment.
The upshot will likely be a volatile week for stocks, as investors' attention will be split between poring over earnings reports and watching out for events unfolding overseas.
"Expectations are high, so the earnings reports out [this week\] will have to be just as strong," said Mr John Caldwell, chief investment strategist at McDonald Financial Group in Cleveland, Ohio, who added he is expecting a "great" earnings season.
"They have to be strong to support the returns we had for stocks over the last year, and they have to be very strong to support stocks moving even higher," Caldwell said.
Roughly 70 companies in the Standard & Poor's 500 are scheduled to report results this week.
And though investors are anticipating a bumper crop of earnings, rising tensions in the Middle East, particularly Iraq, could eclipse any upbeat news on the corporate front, analysts said.
"News from the mideast will continue to push markets around, because our continued involvement is expensive, and will impact the budget," said AC Moore, chief investment strategist at Dunvegan Associates in Santa Barbara, California.
And while companies may issue upbeat forecasts, "markets may shrug it off in view of negative money flows and a seemingly bogged down situation in Iraq," Mr Moore said.
Dow components due to post earnings this week are Intel Corp, Johnson & Johnson Inc, McDonald's Corp, International Business Machines Corp and Citigroup Inc.
Other heavyweights reporting results include Merrill Lynch & Co, Texas Instruments and PepsiCo.
Although earnings will take centre stage this week, investors will also receive a batch of economic data, for more clues about the strength and staying power of the economic recovery.
Later today, the Federal Reserve Bank of Chicago will release its Midwest Manufacturing Index for February. Tomorrow, the US government will issue reports on March retail sales and February business inventories.
Later in the week, investors will also look out for figures on US weekly jobless claims, housing starts, March industrial production, and the University of Michigan's consumer sentiment index. - (Additional reporting by Reuters)
