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 The third quarter was rough for the financial markets -- not that you'd be able to tell from where stocks stand now. Last week, the Dow Jones industrial average rose 1.23 percent and is near record highs. The Standard & Poor's 500 index hit a record after gaining 2.02 percent last week, while the Nasdaq composite index climbed 2.92 percent.
The gains came as data revealed a growing jobs market in August and September, amid modest growth in the manufacturing and services sectors. Investors shrugged off warnings from Citigroup Inc., UBS AG, Washington Mutual Inc. and Merrill Lynch that loan-related losses would significantly hurt their third-quarter results. Wall Street, unsurprised by the announcements, was if anything relieved that the banks foresee better performance for the fourth quarter.
But any worse-than-expected earnings or warnings revealing problems going forward could rock the market.
"The relief rally has gotten us to this point," said Joe Battipaglia, chief investment officer at Ryan Beck & Co. "There continue to be lagging sectors, the biggest being, of course, the consumer."
On Friday, the Commerce Department reports on September retail sales, which economists surveyed by Thomson Financial expect to show an anemic gain. But Wall Street is forecasting solid third-quarter earnings from some big consumer brands
-- Yum Brands Inc. on Monday, Costco Wholesale Corp. on Wednesday, and PepsiCo Inc. on Thursday.
Alcoa Inc. on Tuesday will be the first of the 30 Dow companies to release third-quarter earnings, and the aluminum producer is expected to report a modest profit rise. Another Dow component, General Electric Co., will release earnings Friday. GE is expected to post an increase in profit, even after warning last month that exiting the struggling subprime lending market meant the industrial conglomerate had to take a third-quarter charge of $300 million to $400 million.
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 Some of the most highly anticipated earnings reports, given the problems in lending this summer, are those of student lender SLM Corp., or Sallie Mae, which is currently a takeover target, and M&T Bank Corp., the first of the regional banks to officially release third-quarter results. Analysts expect both to post modest gains.
Though earnings are coming into focus, monetary policy remains on investors' minds.
On Tuesday, the Fed releases minutes from its Sept. 18 meeting, when it decided to lower the target federal funds rate by half a percentage point to loosen up the credit markets and prevent them from paralyzing the economy. Also Tuesday, St. Louis Fed President William Poole and San Francisco Fed President Janet Yellen will be making speeches that investors will parse for clues about monetary policy.
Wall Street is split over whether policy makers will lower the target rate again or hold it at 4.75 percent. Battipaglia thinks they should keep rates where they are, given that the credit and stock markets are improving. Last week, demand for commercial paper
-- a type of bond that companies sell for quick cash -- was on the upswing.
Furthermore, energy and food prices have rebounded from their August sell-off, while the dollar is still trading near all-time lows against the euro
-- a recipe for inflation. A weak dollar helps boost U.S. exports and magnifies the revenue at U.S. companies with overseas operations, but it can also make imports more expensive and U.S. Treasurys less attractive to foreign buyers.
Wall Street will see how the dollar is affecting trade in Thursday's Commerce Department data on the August international trade deficit and September export and import prices.
If the weaker dollar is a concern for the Fed, or if inflation appears to be accelerating in the Labor Department's Friday report on September producer prices, lower rates may not be in store for the market.
[Associated Press; by Madlen Read]
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