Earnings to set tone for stocks in week ahead

By Leah Schnurr

NEW YORK (Reuters) - With Wall Street stuck in a range since May, the start of second-quarter earnings season next week could prove to be a decisive factor for determining how much faith investors should have in an economic recovery.

After a rally of as much as 40 percent for the S&P 500 on expectations the economy will begin to turn around by year end, analysts will hone in on companies' projections to see if their hopes are corroborated.

The light menu of economic data will help keep the spotlight on earnings releases, with bellwethers Alcoa (AA.N: Quote, Profile, Research) and Chevron (CVX.N: Quote, Profile, Research) posting their quarterly scorecards. Of even more importance will be any outlook companies give for what they expect to see for the rest of the year.

A large U.S. Treasury auction could buoy the market if it shows there is good demand for government debt. Concern that the appetite for debt is waning as the government tries to fund its stimulus efforts was soothed by solid demand in last week's record $104 billion auction of Treasury securities.

"I think we are range bound and we're going to stay there for a while," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.

"What will probably break it is going to be the earnings season because the expectation is for at least some rebound in earnings, especially from the banking sector."

WHEN 'LESS UGLY' LOOKS GOOD

Investors will be looking for companies to release results that are "less bad" in the same way that recent economic data has spurred optimism that the worst is over.