Market focus will shift from macro to micro this week, and investors betting on gains in stocks will hope coming earnings reports will be somewhat stronger than recent disappointing economic figures.
Earnings expectations have been falling sharply in the past weeks, with the most recent estimate showing a 2.8 percent decline in earnings growth, squeezed by dwindling expectations for the energy sector. The concern about economic growth will increase following Friday’s weaker-than-expected data on jobs growth, Reuters reported.
Energy companies’ earnings are now expected to fall nearly 64 percent year-on-year. Investors saw the sector drop 3.6 percent in the first quarter, bringing the nine-month decline to 22 percent.
Market bulls say softening economic data, including US private sector jobs, factory activity and consumer spending, have weighed on stocks. While weak figures keep the Federal Reserve from raising rates — a positive for markets — the negative factors are a concern, said Daniel Morris, global investment strategist at TIAA-CREF in New York.
“We view this payroll number as more negative than positive for US equities,” he said.
The effect of the strong US dollar on offshore operations and creeping inflation, in the form of higher labor costs, have also taken a toll, one that some strategists think is too pronounced. In Friday’s abbreviated trading session, equity futures fell about one percent.
He said that both energy companies pummeled by concern about the sharp drop in oil prices and multinationals suffering from the impact of a stronger dollar might actually be set for positive surprises.
Despite the rising concern about the earnings season and the weaker data, stocks showed resilience to start the year. Last week, the S&P 500 closed its ninth consecutive quarterly gain, even if it was a meager 0.4 percent rise.
