updated 1/9/2005 5:10:21 PM ET 2005-01-09T22:10:21

Is the late 2004 rally over? With investor uncertainty increasing over the past week, it will take a series of strong earnings reports for Wall Street to continue its holiday rally through the rest of January.

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The so-called “January effect” — in which new money coming into the market after Jan. 1 is thought to spur increased buying and boost prices — was nowhere to be found last week, as investors instead bailed out of risky stock holdings and drove prices lower. And the December jobs report, released Friday, was muddled enough to make it difficult to divine a direction for the economy and the stock market.

So it now falls to earnings season, which officially begins Monday, to give Wall Street a direction. With last week’s selloff, analysts said it will likely be easier for the market to rise on good news, since many now consider stocks to be oversold. But investors are also likely to send a stock lower if the company’s earnings report fails to meet expectations.

Earnings growth is expected to be anywhere from 10 percent to 15 percent over the fourth quarter of 2003, so there’s a good chance there will be more positive surprises than negative. And that could give Wall Street the push it needs to resume its rally.

Last week, profit-taking from the postelection rally and concern over inflation and interest rates pushed stocks substantially lower. For the week, the Dow Jones Industrial average fell 1.66 percent, the Standard & Poor’s 500 index lost 2.12 percent, and the Nasdaq composite index dropped 3.99 percent.

Tuesday's FOMC minutes may help
The release of the minutes from the Federal Reserve’s Open Market Committee meeting on Tuesday gave Wall Street important insights into the Fed’s thinking — and raised concerns about the possibility of higher inflation and interest rates. Prices will again come into focus Friday as the Labor Department releases its Producer Price Index, a measure of how much industry pays for goods and services.

The PPI is expected to fall 0.1 percent in December, a reflection of lower energy prices for most of that month. With food and energy prices taken out of the equation, so called core PPI is expected to rise 0.2 percent, the same as November. A higher increase in core PPI will likely worry many investors concerned about inflation.

In other economic reports, the Commerce Department will release its report on retail sales for the month of December on Thursday. Economists expect sales to rise 0.7 percent, compared to a small 0.1 percent increase in November. However, putting auto sales aside, retail sales were expected to rise 0.4 percent, compared to 0.5 percent in November.

On tap: Alcoa, Intel, Apple
Dow component Alcoa Inc. traditionally kicks off earnings season as the first major company to report earnings. Looking at recent quarters, however, investors can be forgiven if they would prefer another high-profile company to go first.

The aluminum company is slated to earn 41 cents per share for the fourth quarter, up from 37 cents from a year ago, when it reports Monday afternoon. The company’s stock has fallen 20.1 percent from its 2004 high of $38.40, closing Friday at $30.69 per share. After disappointments the last two quarters, and with raw materials costs a concern due to the weak dollar, Alcoa could have a difficult quarter once again.

Chip maker Intel Corp., which issued a very positive mid-quarter update last month, is a more likely candidate to surpass Wall Street profit forecasts when it reports its earnings after Tuesday session. The Dow component is expected to earn 31 cents per share, compared with 27 percent in the fourth quarter last year. Intel shares have slid steadily over the past year, falling 33.4 percent from their 2004 high of $34.24 on Jan. 8 to close Friday at $22.80.

Apple Computer Inc. has seen its stock price climb in the opposite direction as Intel, rising steadily from a 2004 low of $21.79 on Feb. 4 to close Friday at $69.25 — a 217.8 percent increase. Much of that can be attributed to the success of Apple’s iPod music player, sales of which boomed this holiday season. Apple is expected to earn 46 cents per share when it reports on Wednesday, a big jump from the 16 cents per share it earned a year ago.

The financial markets will be closed Monday, Jan. 17, in observance of Martin Luther King Jr. Day.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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