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 First-quarter earnings estimates have fallen sharply as many
companies have blamed the brutal winter for weak outlooks.
With high-valuation stocks under pressure, earnings could be
subjected to even more investor scrutiny than usual.
"There's skepticism among investors about the outlook, and we're
getting into the first-quarter earnings season, so you're going to
see some positioning," said Brian Jacobsen, chief portfolio
strategist at Wells Fargo Funds Management in Menomonee Falls,
Wisconsin.
Profit growth for Standard & Poor's 500 companies now is expected to
have increased just 0.9 percent in the first quarter from a year
ago, down from a January 1 forecast for 6.5 percent growth, Thomson
Reuters data showed.
In the coming week, 54 S&P 500 companies are scheduled to report
first-quarter earnings. In comparison, 29 companies in the S&P 500
had reported results through Friday.
Earnings are due next week from such high-profile names as General
Electric <GE.N>, Johnson & Johnson <JNJ.N>, Goldman Sachs <GS.N>,
Google <GOOGL.O><GOOG.O> and IBM <IBM.N>.
Wall Street will get more readings on the U.S. economy in the coming
week, with retail sales on Monday, the Consumer Price Index on
Tuesday, U.S. housing starts and industrial output on Wednesday and
the Federal Reserve Bank of Philadelphia's business activity index
on Thursday. The latest weekly initial jobless claims will also be
released on Thursday.
This flurry of numbers will come during a four-day week. The U.S.
stock market will be closed for Good Friday.
Volume is also likely to be lighter than usual with some
participants away for the observance of Passover, which will begin
at sundown on Monday.
BLUE CHIPS BACK IN STYLE
A move into blue chips is one trend emerging after the market's
slide, which pushed the Nasdaq on Friday to a close below 4,000 for
the first time since February 3.
The Nasdaq Composite Index <.IXIC> is down 4.7 percent for the month
so far, while the Dow Jones industrial average <.DJI> is down 2.6
percent and the S&P 500 <.SPX> is down 3 percent.
"You've seen small caps dominate," Jacobsen said, referring to some
of Wall Street's one-time darlings. "We're going to begin to see
large caps dominate now as people shift more from these high-beta
plays to quality."
Despite the selloff, data so far showed that investors are still
pouring money into stocks.
Investors in U.S.-based funds put $8.9 billion into stock funds in
the week ended April 9, the biggest net inflows in four weeks. At
the same time, funds that mostly hold U.S. Treasuries reported
outflows for the first time in four weeks, according to data from
Thomson Reuters' Lipper service on Thursday.
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Yet biotechs have been slammed. The Nasdaq biotechnology index <.NBI>
has fallen for the seventh straight week. The biotech index is down
about 21 percent from its record closing high on February 25. The
last time it fell for seven straight weeks was in the summer of
1998.
The price-to-earnings ratio on the Nasdaq biotech index is 34.4. The
forward P/E ratio for the S&P 500 is 14.9, Thomson Reuters data
showed.
Data on sector exchange-traded funds also showed a big move out of
tech-related areas, with science and tech ETFs registering outflows
in the week ended April 9 after at least five straight weeks of
inflows. Healthcare and biotech ETFs also showed outflows for the
latest week, according to Lipper data.
High-growth companies, mostly in the tech and biotech sectors, led
2013's rally, leaving them with some of the market's highest
valuations.
"Valuations are going to start becoming relevant again, at least for
a while," said Uri Landesman, president of Platinum Partners in New
York.
TUNING IN TO THE FED
Part of what's behind the big momentum selloff may be nervousness
surrounding the Federal Reserve's December decision to scale back
its economic stimulus, or quantitative easing.
That's why all eyes will be on Fed Chair Janet Yellen when she
speaks on Wednesday to the Economic Club of New York.
"We've had basically five years of a market that's been nannied by
the Federal Reserve," which has driven up market valuations, said
Quincy Krosby, market strategist at Prudential Financial, based in
Newark, New Jersey.
"Now as we get closer and closer to the end of QE, I think traders
and hedge funds are being very careful and selective."
Questions or comments on this
column, Wall Street Week Ahead, can be emailed to:
caroline.valetkevitch@thomsonreuters.com.
(Reporting by Caroline Valetkevitch; editing by Jan Paschal)
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