What the Market Wants: How will more earnings affect the market?

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Courtesy of David Brown, Sabrient Systems and Gradient Analytics

We come into the week riding a new five-year high for the S&P 500 and eight consecutive positive trading sessions. But a busy week lies ahead with a bevy of economic reports and a boatload of Q4 earnings. So far we’ve only had a peek at the first couple economic reports, and they were mixed with Durable Goods riding transportation to beat an expected 1.7% increase (after last month’s 0.7% increase) with a solid 4.6% gain. However Pending Home Sales disappointed, losing 4.3% after flat expectations and last month’s reading of 1.7%.

Earnings today were mixed with Caterpillar (CAT) beating the bottom line but missing a bit on the top line, although CAT’s positive comments on China buoyed the large caps. Apple (AAPL) helped the NASDAQ move higher, rebounding a bit from its terrible last two sessions of last week, totaling a loss of 14%. However, poor performance from homebuilders, following the above mentioned pending home sales numbers, keep the S&P slightly negative.

Last week saw Mid-caps dominate once again with both Growth and Value leading the rest of the style/caps; although, Large-caps and Small-caps weren’t far behind. Healthcare led the sectors as our SectorCast had projected. But Industrials surprised by taking the second spot with Energy and Financials close behind. Technology, Basic Materials, and Utilities were poor performers last week and seem headed in the same direction this week. Of course, the tone of earnings reports and outlooks from each this week will likely influence sector behavior as the week moves along.

This week will give us our first serious look at the economy entering 2013 with advance GDP later in the week (expected to be lower than Q3); the twin reading of Consumer Confidence and Michigan Sentiment will give us a peek at consumers’ attitudes entering 2013 (expected flat); ADP private employment numbers, Initial Jobless Claims, and the general Unemployment Report will let us see what employers are doing (expected worse); and the FOMC provides its rate decision (expected flat).

Since two thirds of the first 150 S&P 500 earnings reports have been positive surprises, (a bit better than expected), we may net out the week with a generally flat market. After the market today, Seagate Technology (STX) posted an earnings and revenue surprise and was up over 3% following the announcement. Yahoo! (YHOO) beat earnings and revenue estimates and was up as much as 3% in the after-market. It was nice to see two strong earnings reports finish out the day.

Here are the Market Stats.

4 Stock Ideas for this Market

This week, I selected four highly ranked stocks from the “High Growth” preset search in MyStockFinder.

LNN (Lindsay Corporation)–Mid-cap

PE: 21.7, PPE: 18.5
Recent upward analyst EPS revisions
30% 2013 projected EPS growth rate, 12% 5-year EPS growth rate
Increased earnings 92% year-over-year for the 1^st qtr of fiscal 2013. Revenue up 24% year-over-year

CELG (Celgene)–Large-cap