KEY POINTS:
Signs of an improving economy may have dashed hopes for an interest-rate cut, but the potential for better profits may whet the appetite of sharemarket investors.
If corporations signal that business conditions are looking better for the rest of the year, analysts probably will ratchet up earnings forecasts
for the second half.
"Those earnings are going to come in better than we thought, we just don't know by how much," said Carol Miller, senior portfolio manager at Federated Investors in Pittsburgh.
The latest data from Reuters Estimates has analysts forecasting a rise of 4.6 per cent year-over-year for Standard & Poor's 500 earnings in the third quarter, and 8.4 per cent in the fourth quarter.
With the end of the second quarter just two weeks away, earnings may well be on the minds of investors in a week that is very light on economic data.
While stocks have been bouncing back from their recent drubbing, bond yields have remained above 5 per cent.
Bonds were spooked by concerns about inflation heating up, but two reports last week showed core producer prices and core consumer prices behaving well. In fact, the core Consumer Price Index, which excludes volatile food and energy prices, was up by a less-than-expected 0.1 per cent in May.
While bond yields have remained above 5.1 per cent, stocks have been on the rebound.
Last week, the Dow Jones industrial average gained 1.6 per cent, the broad Standard & Poor's 500 index rose by 1.7 per cent, and the Nasdaq Composite Index climbed 2.1 per cent.
Stocks scored big gains on Wednesday after the Government reported unexpectedly strong retail sales for May.
Data expected this week includes a couple of reports on housing, certainly an area that has been a major concern to Wall Street as activity remains depressed and stocks of home builders suffer.
Later today the National Association of Home Builders is set to report its NAHB/Wells Fargo Housing Market index, which measures confidence of home builders. The June reading is expected to come in at 30, unchanged from May, according to the median forecast of economists surveyed by Reuters.
On Tuesday, the Commerce Department issues data on home construction and building permits for May. The survey shows housing starts falling to an annual pace of 1.48 million units from 1.52 million in April.
Building permits are expected to pick up a bit to an annual pace of 1.471 million units from a revised 1.457 million for April.
The calendar of corporate earnings remains light until the second quarter ends on June 30. Highlights this week include a couple of reports from big electronics retailers. Best Buy is scheduled to report results on Tuesday and the quarterly numbers from Circuit City Stores are due on Wednesday.
Best Buy is expected to report higher earnings compared with a year earlier, but Circuit City is expected to report a loss. Circuit City, in the middle of a turnaround effort, recently announced a reduction in its headquarters staff and the redeployment of store managers.
FedEx, the world's largest express delivery business, and investment bank Morgan Stanley are set to report earnings on Wednesday as well.
* The FTSE ended Friday 1.2 per cent higher at 6732.4, its highest closing level since September 2000. It gained about 3.5 per cent for the week.
- REUTERS