updated 7/10/2005 3:09:39 PM ET 2005-07-10T19:09:39

All the talk about economic growth, inflation, oil prices and interest rates can send the markets scurrying in any direction. But when it comes to stocks, there’s no better indicator of performance than earnings.

Major Market Indices

Second-quarter earnings season begins in earnest this week. Looked at individually, a company’s earnings are certainly the clearest indicator of whether it’s a good investment. Looked at collectively, earnings should give the market some clues about the future of the economy.

The economy isn’t in bad shape — quite the opposite. Recent economic data points to solid, if slowing, growth and a low risk of inflation. But there are enough other questions that have some analysts concerned.

“Right now, earnings growth looks good. Revenue growth in the first quarter looks good. You have really good data suggesting that things are fine in the market,” said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers in Boston.

“But it’s almost being like in the eye of the hurricane. Swirling all around us we have the housing bubble, oil prices, terror threats, trade deficits, competition from China — what’s going to hit first?”

Oil seems like a likely candidate. With FedEx Corp. already blaming rising oil prices for disappointing earnings, Wall Street will be looking carefully at other companies for similar oil-related problems. Transportation and airline stocks are already expected to be hit hard, but if other industrial earnings are affected, expect the markets to come out of earnings season on a down note.

Last week, Wall Street recovered from rising oil prices and the London terror bombings to post gains for the week. The Dow Jones industrial average rose 1.41 percent, the Standard & Poor’s 500 index climbed 1.46 percent, and the Nasdaq composite index soared 2.7 percent.

CPI due Thursday
In addition to earnings, the week ahead also brings a great deal of economic data that could help chart Wall Street’s course over the next month. On Wednesday, the Commerce Department reports on the nation’s trade deficit. Economists expect the deficit to come in at $57 billion for May, the same as in April.

On Thursday, the Labor Department issues its Consumer Price Index, a key measure of inflation in retail prices. The index is expected to rise 0.3 percent in June, compared to a 0.1 percent dip in May. “Core” CPI, with volatile food and fuel costs removed, is expected to climb 0.2 percent, slightly more than the 0.1 percent rise in May.

The Labor Department’s Producer Price Index, a measure of wholesale prices, follows on Friday. June’s rise in oil prices is expected to push the PPI up 0.4 percent, compared to a 0.6 percent loss in May. But core PPI is expected to rise just 0.1 percent, the same as in May.

Finally, the University of Michigan’s consumer sentiment index is expected after the opening of Friday’s session. Economists expect the widely watched measure of consumer confidence to come in at 94.5, down from 96.0 in June.

GE, Apple, Genentech to report
One of the most anticipated earnings reports this week comes Friday from General Electric Co. With divisions in manufacturing, media, healthcare and finance, GE is often seen as a barometer for the market as a whole. GE is expected to earn 44 cents per share, up from 38 cents per share in the second quarter a year ago. While the stock has been off a few dollars over the past month, it remains 11.4 percent above its 52-week low of $31.42 on Aug. 5, 2004, closing Friday at $34.99.

On Wednesday, technology sector favorite Apple Computer Inc. is scheduled to release its earnings after the session. The maker of the popular iPod music player has seen its share price surge 167 percent from its split-adjusted 52-week low of $14.37 on July 14, 2004, closing Friday at $38.25. Apple is expected to earn 31 cents per share, up sharply from 9 cents per share a year ago.

Among the drugmakers reporting in the week ahead, Genentech Inc.’s successful drug launches and clinical trials over the past year have given the stock a strong boost — up 103 percent from its 52-week low of $41 on Oct. 27, 2004. The pharmaceutical company is expected to earn 26 cents per share, up from 19 cents per share last year, when it reports after Monday’s session. The stock closed Friday at $83.17.

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