George Brooks: Market Wary of Q1 Earnings Reports

George Brooks  |

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Monday, April 18, 2011 9:24 am EDT

DJIA: 12,341.83
S&P 500: 1319.68
Nasdaq Comp.: 2764.65
Russell 2000: 834.98

The DJIA, S&P 500 and Nasdaq Composite corrected a little more than one-third of the March- April 7% -8% stock market rally, the Russell 2000 corrected one-half of that rally.

That’s impressive considering the fact the Street is revising growth projections for this year’s economy downward, we just got another upgrading in severity for Japan’s nuclear plant disaster, corporate earnings are being impacted by soaring commodity prices, and European debt concerns persist.

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Today: The market averages pressed into overhead supply Friday, an area where increased selling is likely, which I indicated started at DJIA 12,375 (S&P 500: 1322). This “resistance” can be penetrated, however it will take a stream of better-than-expected corporate earnings to produce it.

Near-term support is DJIA 12,245 (S&P 500: 1309).

The outlook for Q1 earnings is mixed. A recent Bloomberg survey of analysts concludes earnings will come in at a plus 12% for Q1 and 17% for the year as a whole, though analysts are quick to point out the number of companies beating estimates has been decreasing in recent quarters.

Ed Yardeni, Yardeni Research Inc., told Bloomberg Television, “ When you look at corporate profits, you have to be impressed at how well companies are being managed in face of all the adversities. That feeds into the resilience in the markets.”

Not much help from the Fed, though. Going counter to the pack, Richmond Fed president, Jeffrey Lacker, criticized the Fed for being too slow to withdraw stimulus during the last business expansion and should tighten credit this time around before inflationary pressures build too much. However, he is in the minority among Fed officials who so far favor keeping rates at current levels, and he does not have a vote on the FOMC this year.

In its Beige Book report, the Fed referred to the economic expansion as “moderate” while Lacker sees it in “full recovery” mode with the fundamentals for future growth strong.”

George Brooks

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