Signs of slowdown eyed in earnings deluge-

Stock investors looking to recoup from the worst week in almost three months will have to keep one eye out for signs of weakness in the tidal wave of earnings due next week and the other on the threat surging oil prices pose to the economy and profits.

Nearly a third of the S&P 500 components will report their quarterly results next week, following a rockier-than-usual kickoff to the season.

So far, of the 131 companies that have already reported, more than 25 percent have missed Wall Street's profit targets. That's more than twice the level of earnings misses at the same time last year, according to Reuters Estimates.

"Obviously, there is a fairly heavy earnings calendar next week and continued earnings misses will certainly make analysts take down their earnings estimates for the next quarter." said Tim Biggam, lead option strategist at online brokerage thinkorswim, in Chicago.

CLOBBERED BY CATERPILLAR

Among some of the more troublesome warnings from Corporate America this week was the comment from Caterpillar Inc's chief financial officer that there is a 50 percent chance the United States will fall into a recession in 2008 and pessimistic remarks from diversified manufacturer 3M Co (MMM.N: Quote, Profile, Research) on Friday which showed housing woes have spilled into the industrial sectors.

Caterpillar's earnings, plus a much wider than expected earnings miss by Bank of America Corp (BAC.N: Quote, Profile, Research), cast a pall on Wall Street and sent the Dow down 2.64 percent on Friday, while the S&P 500 slid 2.56 percent and the Nasdaq lost 2.65 percent. Still, the Dow is only about 676 points off its record.

On Friday, the implied prospects for another rate cut from the Federal Reserve on Halloween, when its next meeting will conclude, leaped to 98 percent -- up from only 32 percent a week ago -- according to the interest-rate futures market.

"The next week or two are critical, they're going to set the tone for the fourth quarter and the beginning of 2008," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading, in Boston.

"If all the talk about recession, a slowdown in consumer spending, continued weakness in housing, soft labor market, if all that is true, you can't continue to trade at or around these all-time highs," Strazzullo said.

Among the Dow mega-caps set to reveal their quarterly results next week are credit card issuer American Express Co (AXP.N: Quote, Profile, Research) and drug maker Merck & Co Inc (MRK.N: Quote, Profile, Research) on Monday, phone company AT&T Inc (T.N: Quote, Profile, Research) and chemical maker Du Pont (DD.N: Quote, Profile, Research) on Tuesday, jet manufacturer Boeing Co (BA.N: Quote, Profile, Research) on Wednesday, and software maker Microsoft Corp (MSFT.O: Quote, Profile, Research) on Thursday.

Technology bellwether Apple Inc (AAPL.O: Quote, Profile, Research) will release its earnings report on Monday. The tech sector has been largely immune to the profit woes that have hurt groups such as the industrials and financials since its fortunes are not tied to the housing market.

"Technology has been doing quite well," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC, in Newark, New Jersey. "Look at the relative performance of Nasdaq."

Since the end of June, the Nasdaq has risen 4.68 percent -- or five-and-a-half times the gain in the Dow, which has added 0.85 percent -- and sharply outperforming the S&P 500, which has dipped 0.18 percent.

COUNTRYWIDE SKELETON WATCH

Sector-wise, energy and technology are the leaders for that period, while financials and consumer discretionary, which includes home builders, are at the back of the pack.

Those groups could fall further behind if Countrywide Financial Corp (CFC.N: Quote, Profile, Research), the country's largest mortgage lender, lets any more skeletons out of the closet when it releases its

quarterly results on Friday. Last week Countrywide said September mortgage lending fell 44.3 percent and that delinquencies rose to 5.85 percent. Countrywide's shares are down 63 percent this year.

Other beleaguered companies set to report are home builders Centex Corp (CTX.N: Quote, Profile, Research) on Tuesday and Pulte Homes Inc (PHM.N: Quote, Profile, Research) on Wednesday. Both are expected to report a loss.

The housing sector will get even more scrutiny as existing and new home sales figures are scheduled for release on Wednesday and Thursday, respectively.

"Data on the housing front has been showing that things are getting worse," Praveen said. "The market will be looking at whether it is deteriorating further or bottoming here."

WHAT'S SCARY? OIL AT $100

Commodities will be closely watched after Dow component Honeywell International Inc (HON.N: Quote, Profile, Research), another wide ranging industrial conglomerate, said that higher raw material prices are starting to take a toll.

Oil reached a fresh record of $90.07 on Friday as a weakened U.S. currency made crude, which is priced in dollars, more attractive to overseas investors. Tensions between Turkey and Kurdish rebels in northern Iraq were also propping up the price of crude.

People are "already talking about $100 a barrel. It's not 'if' but 'when.' There will be a very, very negative reaction in equities if we see that," Praveen said.

"One hundred dollars means that current oil prices are where they were in 1972 in inflation-adjusted terms. That's when the fears of a U.S. recession will come to the forefront."