By Wallace Witkowski As a stellar earnings season draws to a close, a worsening jobs situation and fears of a double-dip recession may weigh upon U.S. investors this coming week. Investors are grappling with the growing disconnect between strong corporate earnings and a faltering U.S. economy. Currently, 75% of the 484 companies in the S&P 500 that have reported have beaten Wall Street expectations, compared with a quarterly average of 62%, according to Thomson Reuters. That's done little to move the market. The S&P 500 Index (SPX) has shed about 0.1% since earnings season kicked off July 12. Over the past week, the S&P 500 fell 0.7% to close at 1,072; the Dow shed 0.9% to close at 10,214; and the Nasdaq Composite Index (RIXF) rose 0.3% to close at 2,180. Six S&P 500 companies report in the coming week. On Tuesday, Medtronic Inc. (MDT) and Big Lots Inc. (BIG) report quarterly results. On Wednesday, JDS Uniphase Corp. (JDSUD) reports. Thursday brings Novell Inc. (NOVL) and Patterson Cos. (PDCO), and on Friday, Tiffany and Co. (TIF) reports. Job growth, or the lack of it, remains the focus. Thursday saw a surprise jump in initial jobless claims to 500,000, with those numbers subject to revision this coming Thursday. Coupled with an anticipated downward revision to the second-quarter gross domestic product, many are wondering if these indicators will be the one-two punch that derails the economy. Channing Smith, co-manager of the Capital Advisors Growth Fund, said these economic indicators are going to be the key market mover next week. "We'll see if the 500,000 figure was an anomaly or something more troubling," Smith said. "But the GDP number is going to be very critical in the debate on whether we are seeing a weak recovery or a double dip." Frank Ingarra, portfolio manager at Hennessy Funds, said markets have been trading on headlines recently rather than company fundamentals because of a lack of clarity on the economy. "The awful jobs numbers kicked everyone in the teeth," Ingarra said. "Companies are flush with cash, but they're not hiring." Companies are slow to hire because they are still unclear on how much health-care reform is going to cost per employee, Ingarra said. As a result, companies are more inclined to put that money into mergers and acquisitions to grow, with the net result being more job loss than creation, he said. That trend made big headlines in the past week with BHP Billiton's (BHP) $38.6 billion hostile bid for Potash Corp. (POT); Intel Corp.'s (INTC) $7.7 billion bid for McAfee Inc. (MFE); and Rank Group's $4.6 billion bid for Pactiv Corp. (PTV). Also, on Friday, Fed Chairman Ben Bernanke is set to speak at the Kansas City Federal Reserve Bank's annual retreat in Jackson Hole, Wyo. Bernanke is scheduled to provide his economic outlook and the Fed's response. Fed watchers will be looking for whether that will lead to a second round of quantitative easing. On the positive side, Smith said that if one separates the market from the economy, the backdrop for the market is very attractive because of low interest rates, benign inflation and a good earnings season. "Stocks are very attractive," Smith said. "You have to be selective because we expect volatility. But if we get a sovereign default, then all bets are off."
