Stocks could chop around and rack up more losses in the week ahead, as the next wave of corporate earnings reports shows just how much the strong dollar has crimped sales growth.
Traders will also be on high alert for signs of a more prolonged pullback after Friday's wipeout sent the Dow tumbling more than 250 points. The market sold off after reports early Friday that Chinese regulators would crackdown on margin lending while making it easier for investors to bet against the market there. European markets also led the decline as they traded nervously on worries about a default by Greece.
Earnings are expected from more than a quarter of the , including diverse names like IBM, United Technologies, Boeing, Coca-Cola, Facebook, Amazon.com, General Motors and Procter & Gamble. So far, earnings are beating at a 3-to-1 pace and profits are 6 percent above expectations, according to Thomson Reuters.
But 53 percent of companies have so far missed their revenue forecasts. The industrial sector could come under special scrutiny in the coming week because of high-profile revenue misses Friday by both General Electric and Honeywell.
"I think you'll continue to see a pullback, and I think the industrial angle is going to be a good one because industrials are going to be pretty weak," said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management. "I would assume they're going to be the biggest impacted sector by the currency effect and they're going to have the most headwinds. You're seeing that. GE missed their revenue number because of currency."
The industrial sector's more than 2.2 percent decline in the past week made it the worst performer. A counterweight was the 2.1 percent gain in energy names, which snapped back as more investors dipped into the group on the belief oil may have bottomed when it last troughed in mid-March. West Texas Intermediate crude futures for May were up 8 percent for the week, rising temporarily above the important technical level of $56 per barrel.
The was negative for the week, thanks to the 1.1 percent decline Friday. Even as earnings could take a bite out of stock prices, many analysts expect the market to rebound as more reports are released.
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"I think as you move through the earnings season, next week and the week after, you get tons and tons of reports. it'll probably work itself out and as you get through the end of April, beginning of May, earnings will probably look OK," said John Canally, investment strategist and economist at LPL Financial.
The S&P 500 had crossed above 2,100 this past week, edging close to its all-time high of 2,119. "We've come up against these resistance levels—2,100 for the S&P and 5,000 for the Nasdaq. The Nasdaq is allergic to 5,000. Every time we get up there, it backs down," said Burkly. He said the pullbacks have been narrow and the market should hold above its April low of 2,039.
"I do think by the time we get to the end of the earnings season, it will be better than expected, and the S&P will be above 2,100," he said. Analysts expect earnings for the second quarter to be somewhat better than the first, as the economy recovers from weather-related weakness. "I think it's too early to look for the weather-induced snapback."
Burkly said he expects energy to be the best-performing sector in the S&P in the second quarter. Energy earnings could surprise to the upside, helping overall S&P 500 profits grow by several percent instead of decline as is currently expected by analysts.
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"I think Schlumberger was a good example of that. The story is how quickly are they getting their businesses back in shape to deal with lower energy prices. The fact they actually kept their margins intact was a good sign. Energy just got too depressed, and it's coming back around," he said. "They're going to be the best-performing sector just because they're coming off such low expectations. Earnings were forecast to be down 60 percent year over year so it's not too hard to beat that."
Schlumberger, the world's biggest oil field services company, reported operating margins slipped to 17.6 percent from 19.3 percent, but that was much better than expected by analysts, according to Reuters. The company's first-quarter profits declined 38 percent and it warned of an extended slowdown in drilling activity. Schlumberger also announced plans to eliminate 11,000 jobs.
Econorama
There is a short list of economic reports expected in the week ahead but none carry the weight of the past week's retail sales or CPI for Fed watchers. There are existing home sales for March on Wednesday, new home sales Thursday and durable goods Friday.
Robert Sinche, global market strategist at Amherst Pierpont Securities, said the Markit PMI data for Europe, Asia and the U.S. may be the most-telling information since it is the freshest report on business activity. The U.S. report is released Thursday.
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"These PMI numbers for the U.S. and the rest of the world are kind of important, as to where things are going in April," he said. "Do we start getting any signs that U.S. momentum is beginning to pick up?" he said.
Greece will continue to be a focus as the market speculates it will default on debts due in May. IMF officials have said negotiations with the country will take several more weeks but traders expect headlines related to the talks to continue to send ripples through markets in the week ahead.
"We don't have any kind of answer on Greece. We'll read a lot of headlines, and stocks will bounce around on earnings," said one stock trader.
What to watch
Monday
Earnings: IBM, Morgan Stanley, Halliburton, Canadian National Railway, BancorpSouth, BBCN Bancorp, Pinnacle Financial, SunTrust, Zions Bancorp, Steel Dynamics, Royal Caribbean, Hasbro
Tuesday
Earnings: Verizon, United Technologies, Amgen, Yahoo, Travelers, SAP SE, Dupont, Discover Financial, Credit Suisse, Baker Hughes, Canadian Pacific, Lockheed Martin, Gannett, Stryker, Yum Brands, Chipotle Mexican Grill,Cree, , VMWare, Kimberly Clark
Wednesday
Earnings: Boeing, Coca-Cola, McDonald's, AT&T, Facebook, eBay, Petrobras, Qualcomm, F5 Networks, Six Flags, Ryder System, Angie's List, T. Rowe Price, Abbott Labs, EMC, Bank of NY Mellon, St. Jude Medical, DR Horton, Texas Instruments, Cheesecake Factory, Xilinx, SLM, Raymond James
9:00 am: FHFA home prices
10:00 am: Existing home sales
Thursday
Earnings: 3M, Amazon.com, Google, Microsoft, Altria, Caterpillar, Dow Chemical, General Motors, Pepsico,Procter and Gamble, Novartis, Eli Lilly, Union Pacific, Hershey, Freeport-McMoRan, KKR, Domino's Pizza,Johnson Controls, PulteGroup, Dunkin Brands, Raytheon, Starbucks, Capital One, Juniper Networks, Newmont Mining, Southwest Airlines, Pandora
8:30 am: Initial claims
9:45 am: Manufacturing PMI
10:00 am: New home sales
Friday
Earnings: Biogen, AstraZeneca, American Airlines Group, Cabot Oil and Gas, State Street, Xerox, A.O. Smith,Tyco
8:30 am: Durable goods
