More Bumps Ahead as Earnings Season Gets Underway
Say goodbye to the smooth sailing of the first quarter.
Nearly a fifth of the S&P 500 report next week, including big blue chips — IBM, Microsoft,Coca-Cola, and McDonald’s — as well as banks, like Citigroup and Bank of America. On the economic front, there are March retail sales, industrial production, existing home sales and weekly jobless claims.
“We’re getting a peek here into the higher volatility that I think we can expect in the months ahead,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. Grohowski expects seasonal factors to affect trading.
“When you look at ‘sell in May, and go away,’ and you look at what happened last year, it’s unrealistic to think investors are not going to be looking at that…I think this year is going to be true to that historical pattern,” he said. The so-called “sell in May” phenomena was true for the market last year, when stocks made their highs for the year in April and then ended flat after a choppy summer and early fall.
“On the plus side, we still see valuations as being nicely supportive for this market, and we’re not maybe as concerned as some for first quarter (earnings) here,” said Grohowski. “I think first-quarter earnings could surprise to the upside. I think 3 to 5 percent is the best guess for first quarter operating earnings growth.”
Stocks fell for a second week, in the most volatile week of the year, punctuated by big swings in both directions. The Dow fell 1.6 percent to 12,849, and the S&P 500 fell nearly 2 percent to 1370, a key technical area. At its low of the past week, the S&P 500 was off 4.6 percent, from its recent high, and down for two weeks in a row, for the first time since November.
“I think this is the first time since October, where we’ve woken up, and the reality is that stocks are typically volatile, despite zero volatility in the first quarter,” said Art Hogan of Lazard Capital Markets.
“It’s possible we could double what we’ve done already” in terms of the market decline, said Hogan. He said the stock market runs the risks of weaker U.S. data; a slowdown in China, and the European debt saga becoming more threatening.
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What to Watch
Earnings: Citigroup, Gannett, Mattel, Charles Schwab
Earnings: Coca-Cola, Johnson & Johnson, Goldman Sachs, State Street, Northern Trust, US Bancorp, IBM, Intel, Yahoo, Intuitive Surgical
Earnings: BlackRock, Abbott Labs, Halliburton, PNC, Textron, St. Jude Medical, Yum Brands, Qualcomm, eBay, Noble Corp, Marriott, Sallie Mae, F5 Networks
Earnings: Bank of America, Morgan Stanley, Verizon, DuPont, Travelers, Nokia, Peabody Energy, Union Pacific, Phillip Morris, PPG, Microsoft, Capital One, Altera, Chipotle Mexican Grill, Chubb, ETrade, Diamond Offshore, Sherwin-Williams, Genuine Parts, Baxter, BB&T
Earnings: General Electric, McDonald’s, Schlumberger, Under Armour, Honeywell, Johnson Controls, Kimberly-Clark