This week provided the calm before the storm. There are only a few companies reporting earnings this week and the economic calendar is uneventful as well. That will change next week. There will be over 100 S&P 500 companies reporting earnings and economic calendar should provide bond traders something to focus on. Producer prices, consumer prices and housing starts are among the releases investors will have to digest.

Earnings growth estimates declined significantly last week, down 80 basis points to 10.4%. This is significantly lower that the estimates of 12.6% at the beginning of the year. Estimates for the rest of the year have not declined, but with companies starting to report first quarter results, they will likely discuss their outlook for the rest of the year. Higher interest rates and higher commodity prices will likely dominate the discussions.

Alcoa's first quarter earnings exceed analysts' estimates. The leading aluminum producer earned $0.70 per share, significantly higher than the 51 cents analysts forecasted. Revenue was 16% higher year-over-year and 9% higher than the fourth quarter of 2005. Net income was 129% higher than a year ago. Most of the increase was due to soaring aluminum prices. Alcoa said its average price increased 24% and shipments rose 5.4%.

Harley-Davidson reported first quarter results that were slightly better than Wall Street's estimates. Shipments were 3.6% higher and the company anticipates shipments to be up only 1% for the current quarter. However, the company expects sales to accelerate during the second half of the year and maintained its guidance for full year production of about 350,000 motorcycles this year, which is about 7% above last year. The lower second quarter spooked investors and the stock dropped almost 6%. Even as growth is weak, Harley shipments in the U.S. declined. Overseas shipments rose 21%, US shipments dropped 1%. One hopeful sign for Harley was that sales at the retail level were stronger than shipments. Retail sales increased 6.9% driven by a 12% increase in international sales, while retail sales in the US were up 5.8%.

Gannett reported lower first quarter earnings due to lower advertising revenue at its newspapers. After accounting for an acquisition, total revenue decreased slightly from last year. Pro forma advertising revenue at its newspapers declined 2% including a 4.5% at USA Today. Softer newspaper revenue was offset by an 11% increase in broadcast revenue. The company has several NBC affiliates that benefited from the Winter Olympics. Classified ads in the US gained 4.5% led by a 22% increase in real estate. March was up 31%. Employment increased 7% in its community newspapers led by the South and West regions. This offset a 14% drop in auto classifieds. New Jersey and the Midwest were the worst areas of the county, but all regions showed a decline. The company also owns newspapers in the UK. The company said it is starting to see improvement in the UK economy, but still sees very mixed signals. It said that it has historically experienced 18 to 24 month cycles and the downturn started during the first quarter last year. It hopes that the second half of the year will be situation will start to ease.

Circuit City announced that its fourth quarter earnings jumped 65%. Sales increased 13%, boosted by a 12% gain in same store sales. This was a vast improvement of the negative 3% same store sales that Circuit City has averaged over the past five years. Similar to Best Buy, the company said that sales of flat panel televisions were up triple-digits. The company forecasts that first quarter earnings would be even with last year and same store sales would be up 5-7%.

D.R. Horton announced that first quarter unit orders advanced 10%. The average price dropped 3% from last year and was flat sequentially. Orders in the Southeast and the Southwest led, up 24% and 13% respectively. Orders in the Midwest fell 39%. Prices dropped the most in the Mid-Atlantic (-11%) and in the Southeast (-5%). Prices in the Midwest showed the largest gain, up 11%. It appears homebuilders will have to decide if they would rather raise prices or increase volume. M/I Homes also reported first quarter orders this week. On the surface its orders appeared strong. Orders increased 5% during the quarter, but the number of communities increased by 19%. Orders per community declined 11.5%.

The International Council of Shopping Centers reported that March same store sales increased 1.9%. This was the slowest year-over-year increase since November 2004. As we discussed last week, the shift in Easter was the primary reason cited for weaker results. In aggregate, the results were inline with what analysts were expecting. Discount stores did a little better than forecasted, up 2.2% versus estimates of 1.9%. Apparel did worse. Same store sales at clothing stores fell 2.5% compared to estimates of a 0.4% drop. Teen apparel was even worse, with same store sales falling 0.8%, but analysts expected a 2.0% gain. Retail sales have rebounded in April. The ICSC reported that chain store sales increased 3.9%. This followed four weeks of decelerating sales and the strongest week since the first week of March.

On Wednesday, Bob Lutz, Vice Chairman of General Motors, said that it can complete its turnaround and post a profit with 25% market share, if incentives are kept low and is able to increase margins. GM's market share in March was 23.5%, down from 26.5% last year. As the Asian manufacturers encroach on the SUV market, which accounts for a majority of GM's profit, if not all of it, it will prove to be very difficult to increase margins while increasing market share at the same time, probably impossible.

Last week, the Labor Department reported that 211,000 jobs were added in March. This was 21,000 higher than economists expected, but similar to the previous months the revisions to the previous months offset much of the gains. The unemployment rate dropped back to 4.7%. Some economists are starting to get concerned about wage inflation. Average hourly earnings have been trending up over the past two years. Average hourly earnings were up 3.4% in March, slightly lower than the 3.5% last month, but well ahead of the 2.6% increase last year. Professionals and skilled labor wages are rising faster than the average. Professional and business services workers enjoyed a 5.1% increase in wages. This was the largest increase since September 2001.

Recent stronger economic data has pushed interest rates higher. The whole yield curve has shifted up since last Thursday. Six month yields increased by 7 basis points and ten year yields jumped 12 basis points. Traders also boosted the probability of more rate hikes. Traders are now pricing in an 86% probability of fed funds being 5.25% by the October meeting, with about a 50% chance of it happening in the next two meetings.