NEW YORK – An escalation of Middle East fighting and crude oil prices close to $80 a barrel will create more angst on Wall Street next week, just as the quarterly earnings reporting season hits full swing.
If that doesn't give investors enough to worry about, here's one more thing: Federal Reserve Chairman Ben Bernanke is scheduled to appear before congressional committees Wednesday and Thursday to testify about the Fed's semiannual monetary policy report.
Two major U.S. economic reports, notably the Producer Price Index and the Consumer Price Index for June, will be released next week, along with the minutes of the Fed's most recent policy-setting meeting.
Wall Street will watch the PPI and CPI reports for signs of whether the pace of inflation is picking up, while the Fed minutes will merit scrutiny for any hints about when the central bank might take a break from raising interest rates.
The violence in the Middle East, though, will keep Wall Street on edge.
"The real concern is not so much Israel going to Lebanon, but it's whether Israel is going to threaten Syria," said Steve Goldman, market strategist at Weeden & Co. in Greenwich, Connecticut.
"With Iran's backing of Syria, that would bring up a whole new issue. It's this lingering concern, which makes it tougher for stocks to rebound at this juncture."
This past week, Israel launched a military assault against targets in Lebanon after two of its soldiers were seized and eight killed.
The assault drove the price of crude oil up to a record $78.40 a barrel, fueling concerns that U.S. consumers may cut back spending as their gasoline bills soar. Consumer spending is watched closely because it accounts for about two-thirds of U.S. economic activity.
At Friday's NYMEX close, the August crude contract settled at a record $77.03 — up 4 percent for the week.
Friday, U.S. stocks fell for third straight day, with major indexes registering sharp losses, despite a higher quarterly profit posted by conglomerate General Electric Co. , often viewed as a bellwether for the U.S. economy.
For the week, the Dow Jones industrial average dropped 3.1 percent, while the S&P 500 index shed 2.3 percent, while the Nasdaq lost 4.4 percent.
Hoping for a Cease-Fire
Analysts said if there were any signs over the weekend that the Middle East tensions might ease, then earnings would take center stage, which could give the market a catalyst to crawl back up out of its slump.
"The geopolitical risks are a stiff headwind," said Joseph Quinlan, chief market strategist at Banc of America Capital Management in New York.
"Over the weekend," he said, "we do need to see a cease-fire ... Hopefully the G8 can craft some kind of deal that lowers the temperature," he added, referring to the Group of Eight summit of industrialized nations, which will meet Saturday through Monday in St. Petersburg, Russia.
But "if things continue to boil, oil prices could break through $80 a barrel, and that would weigh on the stock market early Monday.
If problems subside, then the market would focus clearly on Bernanke and earnings next week," Quinlan added.
The coming week will resemble a blitz of numbers, with earnings reports scheduled from Dow components Microsoft Corp., the software maker; diversified health-care company Johnson & Johnson; heavy equipment maker Caterpillar Inc. and diversified manufacturer Honeywell International Inc.
Apple Computer Inc., the maker of the iPod digital music player, and Web search company Google Inc. , are among the major technology names set to post their quarterly results, along with chip maker Intel Corp. .
According to Reuters Estimates, S&P 500 companies' earnings are forecast to rise nearly 10 percent for the quarter, and could well achieve a 16th consecutive quarter of double-digit profit growth — if most companies deliver the standard margin of earnings outperformance of between 2 percent and 3 percent over consensus estimates.
"It's going to be important to see that you don't get too many disappointments this quarter because that's going to make the next quarter even more concerning," said Barry Hyman, equity market strategist at EKN Financial Services Inc. in New York.
"We could see some upside surprises in health care and staples. The consumer discretionary sector will probably have a lot of misses," said Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc. in St. Louis.
Fed Chairman on the Hill
Bernanke's testimony on Capitol Hill is scheduled for Wednesday and Thursday, starting at 10 a.m. on each days. Wednesday, the Fed chairman will speak to the U.S. Senate Banking Committee and take questions from the senators. Thursday, he will testify before the House Financial Services Committee, and participate in a Q-and-A session with the U.S. representatives.
The Fed's roster of speakers includes Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. He will speak on "The U.S. Economy and Current Challenges in Monetary Policy" at 1 p.m. Wednesday before a business leaders' luncheon in Omaha, Nebraska.
The minutes of the Federal Open Market Committee's June 28-29 meeting, when it raised interest rates for the 17th time by a quarter-percentage point, will be released Thursday at 2 p.m.
PPI and CPI Forecast Higher
Economists polled by Reuters forecast that the overall U.S. Producer Price index, a gauge of prices received by farms, factories and refineries, rose 0.3 percent in June after a 0.2 percent rise in May.
Core PPI, excluding volatile food and energy prices, is forecast to rise 0.2 percent after a 0.3 percent gain in May. The Labor Department will release the June PPI report Tuesday at 8:30 a.m.
The overall Consumer Price Index is expected to rise 0.2 percent in June after climbing 0.4 percent in May, according to the Reuters poll.
Core CPI, meanwhile, is expected to rise 0.2 percent in June, following a 0.3 percent increase in May. The June CPI report is set for release Wednesday at 8.30 a.m.