U.S. stock markets looks to tech and finance With bar set

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Apr 14, 2012 at 7:40 PM

U.S. stock markets looks to tech and finance
With bar set close to the floor, companies expected to beat
NEW YORK (MarketWatch) — The U.S. stock market’s recent decline risks turning into a full-fledged correction in the days ahead as first-quarter earnings season gets into full swing.

Yet earnings could also be the catalyst for a rebound.

“Earnings will start to kick into gear; the expectation was extraordinarily dour. So now, we’ve had four bellwethers, and they’ve all beaten, a couple of them nicely, and with good guidance,” said Phil Orlando, chief equity market strategist at Federated Investors.

“I’d say earnings will be less important than future guidance; everybody is beating their numbers,” said Doug Roberts, chief investment strategist for Channel Capital Research.

“Those already reporting represent the industrial, financial services and technology, key elements of the economy, so the market is off “to a pretty good start,” added Orlando, listing aluminum maker Alcoa Inc. AA -3.15% , search engine Google Inc. GOOG -4.06% and banks J.P. Morgan Chase & Co. JPM -3.64% and Wells Fargo & Co. WFC -3.47% “It’s consistent with the thinking that earnings season will be better than the very low bar set.”

Technology and finance will be well represented of the more than 90 S&P 500 companies reporting results in the days head. Read a preview of IBM’s results.

On the tech front, Wall Street will hear from companies including eBay Inc. EBAY -0.93% , Intel Corp. INTC -1.37% , International Business Machines Corp. IBM -1.23% , Qualcomm Inc. QCOM -2.43% and Yahoo Inc. YHOO -1.23% Read full story on expected sales dip from chip giants.

American Express Co. AXP -1.31% and Goldman Sachs Group Inc. GS -4.40% and are among those on deck from the financial sector.

“I don’t think earnings will be the catalyst for a pullback; any selling pressure is likely to come from the euro zone,” said Art Hogan, a market strategist at Lazard Capital Markets in New York.

Wall Street’s worst week so far this year started “with Italian and Spanish bond spreads blowing out — that is mostly likely to be the catalyst for a continuation of the selloff,” according to Hogan.
Pullback time?

On Friday, the major indexes fell after China reported its economy slowed more than anticipated, with the Dow Jones Industrial Average DJIA -1.05% falling 136.99 points, or 1.1%, to close the week at 12,849.59, down 1.6% from the prior week and its most substantial weekly hit since mid-December.

The S&P 500 Index SPX -1.25% retreated 17.31 points, or 1.3%, to 1,370.26, down 2% from the week before, while the Nasdaq Composite Index COMP -1.45% dropped 44.22 points, or 1.5%, at 3,011.33, off 2.3% from the prior week’s close.

The week coming includes a slew of economic reports, with retail sales on Monday seen as particularly important to Federated’s Orlando. “We know the stores reported very strong comp sales for the month of March, so I’d like to see some follow through strength in the Commerce Department data,” he said.

The week also brings range of housing data and weekly jobless claims on Thursday, which follows last week’s “disaster,” which Orlando added should probably be ignored, as it was likely distorted by the Easter-Passover holiday weekend.

Whether the market pulls back further will likely depend on earnings, events around the globe and domestic data. “We spent the entire first quarter with virtually no volatility, and for a whole quarter the mantra for most was ‘I missed the move, and I’m now waiting for a pullback,” said Hogan, who believes “we probably have not completed the process.”

“People are getting nervous, waiting for the correction … if something pops out of a hat, it could be more,” commented Roberts. “People figure I’m up nicely for the year, so I’ll take a few chips off the table.”

Kate Gibson is a reporter for MarketWatch, based in New York.
http://www.marketwatch.com/story/us-stock-mar...2012-04-14

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