Wall Street Week Ahead: Will corporate earnings justify gains?
Investors will look to corporate profits and outlooks this week for confirmation the S&P 500 has another leg to its rally as the earnings season gets under way.
Dow component Alcoa will launch the earnings season after the closing bell on Monday in what is expected to be another solid round of corporate results.
The aluminum producer is expected to report quarterly earnings of 27 cents per share on revenue of $6.07 billion, according to Thomson Reuters estimates.
Some top financial names are also expected to report this week, including JPMorgan Chase & Co
Earnings are what the market is all about. Earnings are critical in here, guidance is critical in here, the conference calls are critical in here, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
In terms of earnings and sectors, you basically want to be with those people who have the ability to raise prices or are participating in the commodity price increases, he said. And you really don't want to be in those people who have the input costs increases and are going to see their margins squeezed by rising commodity prices.
Market analysts have found encouragement for a strong earnings season from the relatively light amount of company preannouncements, leading to the belief that surging commodity costs have yet to compress margins and impact corporate profits.
The Reuters/Jefferies CRB index rose 8 percent in the first quarter, is up 2.6 percent so far in April, and hit its highest level since September 2008.
The S&P 500 <.SPX> has recouped all of the losses suffered in the wake of the Japanese earthquake on March 11, but has been unable to convincingly muscle past the 1,333.58 level, a technical resistance point representing double the 12-year low hit on March 9, 2009.
A potential U.S. government shutdown was averted late on Friday after President Barack Obama signed a short-term spending bill following extended negotiations over the federal budget.
With just over an hour to spare before a midnight deadline, Obama's Democrats and opposition Republicans agreed to a compromise that will cut about $38 billion in spending for the last six months of this fiscal year.
A shutdown was considered unlikely, and the impact on equities from the budget resolution was expected to be muted.
Investors will also eye a batch of economic data this week, providing more insight into the economic recovery, including the consumer and producer prices indexes, the Reuters/University of Michigan consumer sentiment index and the Federal Reserve's Beige Book of economic activity.
The inflation numbers will certainly be important -- producer price index and consumer price index -- the expectation is inflation will be higher than the Federal Reserve will feel comfortable with, said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
The focus (this) week will clearly be on the earnings numbers and the economic numbers and that is where the focus of the market should be.
On Sunday, NYSE Euronext
The company said Deutsche Boerse's $10.2 billion offer would create substantially more long-term value for shareholders and called the $11.3 billion counter-offer from Nasdaq and ICE strategically unattractive with unacceptable execution risk.
(Additional reporting by Doris Frankel and Ryan Vlastelica; Editing by Leslie Adler and Maureen Bavdek)
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