Stocks Earnings are 1st big stock test since market high...

U.S. stocks, which reached all-time highs at the end of March, will face the first real test of their resiliency in the coming weeks as investors parse a flood of first-quarter earnings reports due to hit the market.

Since the benchmark Standard & Poor’s 500 Index reached a new closing high of 1,569.19 on the last trading day of the first quarter, the index SPX -0.01% has met resistance at that level, not straying past 1,573.66, a few points below the all-time intraday high of 1,576.09. On Friday, weak jobs data drove the index down to close at 1,553.28, marking its worst week of the year.

As a drumbeat of lowered analyst estimates and increasingly negative outlooks fills the air, investors who are planning on going long in the market should look past the initial negative hype and concentrate on what the company is making and how they are making it, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Upon further inspection of the earnings, initial pullbacks because of negative numbers can be exploited as buying opportunities.

After all, the fourth quarter saw all-time highs in capital expenditure spending, and 2012 saw all-time highs in corporate cash, dividends, and cash flow, Silverblatt said, who expects those metrics to grow going forward, or at worst be flat.

He said it was noteworthy that most of these strong corporate metrics came during a time when the average investor and consumer was being assaulted daily not only with the uncertainty of the November elections, but also with budget showdowns and the specter of the so-called fiscal cliff.

“The consumer is still spending mostly because they’re tired of hearing how the world is coming to an end,” Silverblatt said. Barring another big flare-up in fighting in Washington, D.C., or on the Korean peninsula for that matter, consumer spending should continue and provide wide support for earnings, he said.

On Friday, the Federal Reserve said February consumer credit jumped the most in six months, rising $18.1 billion, with credit card debt increasing by less than 1% to $532 million.

How that played out in the rest of the first quarter will become more evident toward the end of April and into May when consumer staples and consumer discretionary company earnings start coming out in full force.    

McDonalds Corp. MCD -0.36% , Coca-Cola Co. KO +0.77% , and PepsiCo Inc. PEP +0.66% report the week beginning April 15. While classified as a tech company, the consumer is the life blood of Apple Inc. AAPL +0.19% , which reports during the week beginning April 22, along with other consumer bellwethers like Procter & Gamble Co. PG +0.41% and Amazon.com Inc. AMZN +0.34% . After that, major retailers including Wal-Mart Stores Inc. WMT +0.77% , Target Corp. TGT +0.23% , and Home Depot Inc. HD +0.84% come out in mid-to-late May.

The current bottom-up, operating earnings per share estimate for the S&P 500 is $25.45, according to Silverblatt. That’s two cents above the all-time high of $25.43 set in the second quarter last year, and a 5% increase from the year-ago quarter, so even if it falls a few cents short, it’s the second-highest earnings on record, he said.  

While it may be one of the most negatively forecast earnings seasons in a while, some analysts say the consensus is still too high. Consensus earnings estimates have already fallen 6.5% over the first quarter alone, according to Silverblatt’s data.

Alcoa may be traditional first, but banks are bigger

Even though Alcoa Inc. AA +0.06% is scheduled to report results after the bell Monday and kick off the unofficial start of earnings season, the biggest earnings of the week by far will be in the banking sector with both J.P. Morgan Chase & Co. JPM +0.09% and Wells Fargo & Co. WFC -1.24% reporting on Friday.

Expect fundamentals, such as loan growth and margins to remain challenges for the sector, said Paul Miller at FBR in a recent note. The analyst said that business loan growth slowed dramatically in the first quarter. Also, mortgage originations may fall short of expectations because of seasonal weakness, something to think about with Wells Fargo, the largest U.S. originator or mortgages.

On the other hand, Miller expects capital markets to do well with strong equity and debt underwriting to boost results. Expect that to be a big factor in the results of J.P. Morgan, which has fought with Goldman Sachs Group Inc. GS -1.16% recently for dominance in the capital markets sector.

But unless a significant number of companies beat bottom-line results, it doesn’t appear that earnings growth is in the cards this season. The high frequency of negative outlooks has John Butters, senior earnings analyst at FactSet, expecting a 0.6% decline in earnings for the first quarter.

In the run-up to earnings season, 86 out of the 110 companies on the S&P 500 that have offered an outlook have issued one that falls below the Wall Street consensus. That 78% negative outlook from companies giving forecasts is well above the five-year average of 61%, Butters said in a recent note.

Other S&P 500 components scheduled to report in the coming week all happen on Wednesday and include Bed Bath & Beyond Inc. BBBY +1.14% , CarMax Inc. KMX +2.37% , Constellation Brands Inc. STZ +1.63% , Family Dollar Stores Inc. FDO -0.77% , and Fastenal Co.

Contact Us:

Asad Rasheed
Direct:04-3841906
Email:asad@cfb.ae
Email:info@cfb.ae

For more information please visit our website century financial brokers.

 Here are some useful links that you can follow:

Here is a CFB blog that gives useful daily trade advice... http://century-financial-brokers-uae.blogspot.ae/

You can also follow CFB on facebook (useful advice on posts regularly)

Here is another blog that provides regular news and information and is very useful for Forex Signals. 

News Source: www.marketwatch.com