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Week Ahead: Return Of Global Economic Worries May Eclipse Any Positive Q1 Earnings

 April 16, 2012 03:36 PM


(By R. Chandrasekaran) After the not so good job data on April 6, the stock markets predictably opened the week on a depressed note. Much of the hopes were rested with the world's largest aluminum maker Alcoa (NYSE: AA) to turn the tide. Alcoa did fulfill bulls' sentiments by posting a profit when a loss that was widely expected.

However, a bombshell came from an unexpected source, on the other side of the world, which caused concern. While the return of concern on Europe is understandable, China's lower than predicted GDP proved to be a dampener, eclipsing positive earnings results from the likes of Google (Nasdaq: GOOG) and JPMorgan Chase (NYSE: JPM). The net result is that markets closed down for the second straight for the first time in 2012.

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This is not without reason. Traditionally, April is considered to be a safe bet for markets to have an upward bias, primarily due to earnings. However, April's initial two weeks were in contrast to the first quarter and the month's history. The first two weeks resulted in the Dow Jones Industrial Averages or DJIA, S&P 500 and Nasdaq losing 2.7 percent, 2.7 percent and 2.6 percent respectively.

Given the fresh round of concerns for the  global economy, no one can rule out the possibility of economy playing a spoil sport in preventing the share markets to move upwards even if the earnings are positive.

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On Monday, retail sales data for March showed a 0.8% increase on strong car sales and higher gas prices. In January and February, retail sales advanced 0.6 percent and 1.1 percent respectively. Chain of retail store sales indicated improvement, but auto sales witnessed a fall to 11.1 million units pace in March from 11.7 million-unit rate in February. Personal income growth also remained sluggish rising modestly 0.2 percent in February.

The expectation is that housing starts will be close to flat reading for March at a 696K unit rate. The market will get the data on Tuesday. April's news follows a pull back in February due to 9.9 percent disappointing fall in single-family housing. However, the multifamily sector continued its strength recording an 85.4 percent year-on-year growth. Wells Fargo believes the current soft patch in housing starts will continue to improve and grow 16 percent on a year-on-year basis in 2012. Consensus calls for 705K for March on top of 698K in February, while Wells Fargo predicts 696K.

February's industrial production was flat with January, which recorded 0.4 percent increase. March data will be announced on Wednesday.


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