UPDATE 1-Wall St Wk Ahead: Will corp earnings justify gains?

(Adds more on U.S. budget and NYSE Euronext rejection of
Nasdaq/ICE takeover bid)

By Chuck Mikolajczak

NEW YORK, April 10 (Reuters) – Investors will look to
corporate profits and outlooks this week for confirmation the
S&P 500 has another leg to its rally as the earnings season
gets under way.

Dow component Alcoa will launch the earnings season after
the closing bell on Monday in what is expected to be another
solid round of corporate results.

The aluminum producer is expected to report quarterly
earnings of 27 cents per share on revenue of $6.07 billion,
according to Thomson Reuters estimates.

Some top financial names are also expected to report this
week, including JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and Bank of America
Corp (BAC.N: Quote, Profile, Research). Google Inc (GOOG.O: Quote, Profile, Research) is also due to report.

“Earnings are what the market is all about. Earnings are
critical in here, guidance is critical in here, the conference
calls are critical in here,” said Paul Mendelsohn, chief
investment strategist at Windham Financial Services in
Charlotte, Vermont.

“In terms of earnings and sectors, you basically want to be
with those people who have the ability to raise prices or are
participating in the commodity price increases,” he said. “And
you really don’t want to be in those people who have the input
costs increases and are going to see their margins squeezed by
rising commodity prices.

Market analysts have found encouragement for a strong
earnings season from the relatively light amount of company
preannouncements, leading to the belief that surging commodity
costs have yet to compress margins and impact corporate

The Reuters/Jefferies CRB index rose 8 percent in the first
quarter, is up 2.6 percent so far in April, and hit its highest
level since September 2008.

The S&P 500 (.SPX: Quote, Profile, Research) has recouped all of the losses suffered
in the wake of the Japanese earthquake on March 11, but has
been unable to convincingly muscle past the 1,333.58 level, a
technical resistance point representing double the 12-year low
hit on March 9, 2009.

A potential U.S. government shutdown was averted late on
Friday after President Barack Obama signed a short-term
spending bill following extended negotiations over the federal

With just over an hour to spare before a midnight deadline,
Obama’s Democrats and opposition Republicans agreed to a
compromise that will cut about $38 billion in spending for the
last six months of this fiscal year. For details, see

A shutdown was considered unlikely, and the impact on
equities from the budget resolution was expected to be muted.

Investors will also eye a batch of economic data this week,
providing more insight into the the economic recovery,
including the consumer and producer prices indexes, the
Reuters/University of Michigan consumer sentiment index and the
Federal Reserve’s Beige Book of economic activity.

“The inflation numbers will certainly be important —
producer price index and consumer price index — the
expectation is inflation will be higher than the Federal
Reserve will feel comfortable with,” said Hugh Johnson, chief
investment officer of Hugh Johnson Advisors LLC in Albany, New

“The focus (this) week will clearly be on the earnings
numbers and the economic numbers and that is where the focus of
the market should be.”

On Sunday, NYSE Euronext (NYX.N: Quote, Profile, Research) said its board of
directors rejected an unsolicited takeover bid by Nasdaq OMX
Group Inc (NDAQ.O: Quote, Profile, Research) and IntercontinentalExchange Inc (ICE.N: Quote, Profile, Research) and
reaffirmed its commitment to merging with Deutsche Boerse AG
(DB1Gn.DE: Quote, Profile, Research).

The company said Deutsche Boerse’s $10.2 billion offer
would create “substantially more long-term value” for
shareholders and called the $11.3 billion counter-offer from
Nasdaq and ICE “strategically unattractive with unacceptable
execution risk.” [ID:nN10204369]
(Additional reporting by Doris Frankel and Ryan Vlastelica;
Editing by Leslie Adler and Maureen Bavdek)
(Wall St Week Ahead appears every Sunday. Questions or
comments on this column can be e-mailed to:

UPDATE 1-Wall St Wk Ahead: Will corp earnings justify gains?