For stocks, escaping bear hinges on oil, GE

By Walker Simon

NEW YORK (Reuters) - It will be tough for Wall Street to shake off the bear market blues next week if the price of oil keeps rising and the earnings season kick-off from Alcoa and General Electric disappoints investors.

Earnings estimates for the second quarter have fallen steadily after several big U.S. companies, like United Parcel Service (UPS.N), 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 jumped to a record above $145 a barrel on Thursday, driven by tensions between Israel and Iran, before the long holiday weekend to mark U.S. Independence Day. The price of crude is up 50 percent so far this year.

On Friday, U.S. markets will be closed on July 4th for the Independence Day holiday.

Financial results from Alcoa Inc (AA.N) and GE (GE.N) will kick off the second-quarter earnings season next week. Aluminum company Alcoa, the first Dow component to report results, will release its quarterly numbers on Tuesday. GE, another Dow industrial and a bellwether for the U.S. economy, will report earnings on Friday. Aside from second-quarter results, investors are 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 on Tuesday and on Thursday, he will testify before on financial market regulation before the House Financial Services Committee.

But it's oil that will remain a top concern.

"The price of crude oil is on the top of everyone's list,"

said Dan Peirce, a portfolio manager of the global asset allocation group 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."

Expectation was high that a combination of a weak U.S. dollar, lower U.S. crude stockpiles and tension between Israel and major oil producer Iran would push prices to $150 a barrel before the close of trade, in line with a prediction made last month.

WHEN BULLS BITE THEIR NAILS

For the holiday-shortened week, the Dow Jones industrial average .DJI ended down 0.5 percent, the Standard & Poor's 500 Index .SPX slid 1.2 percent and the Nasdaq Composite Index .IXIC dropped 3 percent. This was the fifth straight weekly decline for the S&P 500 and the Nasdaq, and the Dow's third straight week of losses.

On Wednesday the Dow closed more than 20 percent below its all-time closing high reached in October, crossing the threshold typically considered as the onset of a bear market.

The Dow closed above that mark on Thursday. But the broader S&P 500 index on Thursday slipped into bear territory during the trading session, unable to withstand the avalanche of gloomy global economic news and profit outlooks, surging inflation fears and weakening consumer confidence.

While the S&P 500 eked out a slight advance by Thursday's close to climb out the bear market, optimism appeared scarce that there would be enough bargain hunting next week to help stocks decisively snap out of their slump.