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NEW YORK _ It will be tough for Wall Street to shake off the bear market blues this week if the price of oil keeps rising and the first reports of the new earnings season from Alcoa and General Electric disappoint investors. Earnings estimates for the second quarter have fallen steadily after several big US companies, such as United Parcel Service, rattled investors in recent weeks with profit warnings, blaming the sluggish economy and soaring oil prices.
Oil has become the biggest wild card for growth and corporate profits. It hit a record above $145 a barrel on Thursday, driven by tensions between Israel and Iran, before the long holiday weekend to mark US Independence Day. The price of crude is up 50% so far this year.
Financial results from Alcoa Inc and GE will open the second-quarter earnings season this week. Investors are also anxious to see the companies' forecasts for world economic growth and their own corporate sales prospects.
More clarity on the economic outlook may come from Federal Reserve chairman Ben Bernanke. He is expected to speak twice, first at an FDIC mortgage lending forum tomorrow, and on Thursday, he will testify before on financial market regulation before the House Financial Services Committee.
But oil will remain a top concern.
''The price of crude oil is on the top of everyone's list,'' said Dan Peirce, a portfolio manager at State Street Global Advisors in Boston. ''We saw a pullback one month ago, only to see it come back with a vengeance, which really pressured major equity markets.''
Expectations are high that a combination of a weak dollar, lower US crude stockpiles and tension between Israel and Iran would push prices to $150 a barrel before the close of trade, in line with a prediction made last month.
In last week's holiday-shortened trading week to Thursday, the Dow shed 0.51% to close on Thursday at 11,288.54. The blue-chip index was pounded in June with a 10.2% loss. The Nasdaq lost 3.04% to 2,245.38 while the S&P 500 shed 1.21% to 1,262.90.
The Dow and Nasdaq are now firmly in ''bear market'' territory, down more than 20% from their highs from last October, with the S&P not far off.
''We've become nervous bulls,'' said Brian Gendreau, a New York-based investment strategist at ING Investment Management Americas, which recently went ''neutral'' on US stocks.
''Equities have become a play on oil and we just do not know what oil will do. So we are on the sidelines for now.''
Oil crossing $150 a barrel will drive the stock market to increasingly look at geopolitical tensions as being more of a driver in crude prices than the supply-and-demand equation, said Fred Dickson, a market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
''Investors have a degree of reason to their nervousness with the sabre-rattling between Israel and Iran,'' he said. ''Every $10 rise in the price of oil is going to create an uncertain incremental environment drawing money from equities into investment in oil. Higher energy prices slow economic growth, with oil being a tax on consumer spending.''
General Electric, the second-largest US company by market capitalisation, is viewed as an economic bellwether because of the range of its businesses. Since financial services account for a large chunk of its revenues, GE's results will be scrutinised for clues on the health of the financial sector, the biggest drag on the stock market this year.
Reuters Estimates sees GE reporting profit of $5.33 billion in the second quarter, or 54 cents per share, compared with earnings of $5.4 billion in the second quarter last year.
Alcoa's earnings will also be studied for comments about industrial demand in economies abroad, particularly Asia and South America, said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey. REUTERS
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