NEW YORK (MarketWatch) -- Concerns about the impact of the credit crisis and the weak economy will come into sharp focus next week, with investors set for a flood of earnings from ailing financials as well as the technology sector.
Among earnings highlights will be J.P. Morgan Chase , Merrill Lynch , Citigroup , Washington Mutual , Intel , IBM and Google .
With General Electric Co. shocking the market Friday with a profit shortfall and lowered forecasts, the market will now be putting even more emphasis on earnings forecasts given widespread uncertainty surrounding the economy.
"GE's financial businesses were 80% responsible for the downfall, while its domestic businesses were 20% responsible," said Paul Nolte, director of investments at Hinsdale Associates.
"But its international businesses were not as strong as we'd all hoped," he said, adding that investors have been betting on global growth to cushion the impact of a U.S. recession on earnings.
GE's wake-up call
On Friday, GE disappointed Wall Street after reporting profit that fell 6% in the latest quarter and lowering its forecasts. The diversified industrial giant said its financial businesses took a hit from the credit crisis, while its other U.S. businesses were hurt by a slowing economy.
GE shares slid 12.8%, suffering their worst one-day decline since the stock market crash of 1987, with the broad market following suit.
"This morning GE surprised analysts with much lower-than-expected earnings and a dark view of the future," said Ken Tower, chief market strategist at Covered Bridge Tactical.
"And the all-afternoon sell-off reminds us that investors remain very nervous with no one willing to step up and take the risk of holding stocks over the weekend."
The Dow Jones Industrial Average plunged 256 points, or 2%, to 12,325. The broad S&P 500 index fell 27 points, or 2%, to 1,332, while the Nasdaq Composite fell 61 points, or 2.6%, to 2,290.
For the week, the Dow and S&P both finished down more than 2% while the Nasdaq slid 3.4%.
End of the uptrend?
"As we saw Thursday and Friday, the uptrend for stocks is over for now, with the market now reacting to earnings and unable to break out of its recent trading range," said Hinsdale's Nolte.
Stocks had been on an uptrend for the previous three weeks, ever since the near-collapse and subsequent bailout of investment firm Bear Stearns Cos. had the market hoping that the worst of the credit crisis was behind.
Investors have also been betting that a U.S. economic recession would be shallow and brief. Yet, uncertainty over the impact of the credit crisis and the weak economy are still forcing investors to seek clarity into corporate earnings and outlooks.
"We start getting into the peak of earnings season, with 65 S&P 500 companies reporting next week, mostly from the financial sector," said John Butters, analyst at Thomson Financial.
"We're almost done in terms of profit warnings for this quarter, but now companies start giving guidance for the next quarter and that will be something to keep an eye on with all the uncertainty in the air," he said.
The impact of the credit crisis and weak economy will be clearly reflected in the results of most corporate results for the first three months of the year.
S&P 500 companies are overall expected to post negative earnings growth of 14.1%, already much weaker than the 10.9% expected just a week ago, due to GE's results and downward revisions at financial firms, according to Thomson.
Financials remain the main culprit for the earnings downdraft, with the sector expected to post a whopping 64% drop in earnings from the year-ago quarter. Consumer-discretionary firms are next in line, with weak results from home builders and automakers expected to bring earnings down 13% from a year earlier.
The best perorming sector remains energy, where surging crude-oil prices have helped lift earnings by 28%. Crude-oil prices hit another record high of $112.21 a barrel this past week.
Key earnings for the market next week will come from Intel, Washington Mutual and Johnson & Johnson on Tuesday. Wednesday will see results from J.P. Morgan Chase, IBM, Coca Cola Co. , eBay Inc. and Wells Fargo Co. .
On Thursday, the market's attention will turn to results from Merrill Lynch, Google Inc. and Pfizer Inc. . On Friday, all eyes will be on reports from Citigroup Inc., Caterpillar Inc. , Honeywell Inc. and Wachovia Corp. .
Besides earnings, investors will also parse through the latest economic indications, including March retail sales on Monday, followed by New York state's April manufacturing survey and the National Association of Homebuilders Index on Tuesday.
On Wednesday, attention will turn to readings on both consumer and producer price inflation for March. Thursday will bring data on weekly jobless claims, March leading indicators and the Philadelphia Federal Reserve survey.
Finance ministers and central bankers from around the world will also meet for the G7 meetings in Washington, D.C., this weekend, bringing in their own takes on the length and severity of the global financial system's recent troubles and the related setback to the world economy.
By Nick Godt