By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) -- With the big banks out of the
way, stock investors will turn their attention to tech and
consumer-driven stocks this holiday-shortened week. Microsoft
Corp., IBM, Starbucks and Netflix are among the stocks that will
set the tone.
U.S. stock and bond markets will be closed for Martin Luther
King Jr. Day Monday but a few electronic trading markets will
remain open.
Stocks ended last week mixed with the Dow Jones Industrial
Average (DJI) rising 0.1% for the week and the Nasdaq Composite
Index (RIXF) finishing up 0.6%. The S&P 500 Index (SPX) slipped
0.2%. Year-to-date, only the Nasdaq is showing a gain, by about
0.5%.
Bank and financial earnings figured heavily last week. Most
earnings in the sector topped Wall Street expectations but revenue
expectations were surpassed less than half the time. For the week,
Citigroup Inc. (C) was the biggest disappointment in the sector,
missing top- and bottom-line expectations, and shares finished the
week down 4.5%. Then again, Goldman Sachs Group Inc. (GS) topped
expectations for earnings and revenue while shares finished the
week lower by 1.2%. Compare that to Morgan Stanley (MS), which
reported lackluster results, only to see shares rise 6.7% for the
week.
"We have a very sloppy market," said Paul Nolte, managing
director at Dearborn Partners in Chicago. "It feels like running in
mud."
Hopefully, the market will get more clarity as the sector
breadth of earnings reports expands beginning Tuesday. About 70
companies on the S&P 500 are scheduled to report, and eight Dow
industrials components release results in the week ahead. The focus
will shift from financials to a broader basket of healthcare, tech,
industrials, and consumer-driven stocks.
Investors are getting mixed signals, where the economy seems to
be picking up and production numbers have been good, but at the
same time retail and unemployment figures have been less
encouraging, Nolte said. Also, January consumer sentiment
declined.
On that note, the consumer discretionary sector will continue to
be watched very closely, Nolte said.
Brian Belski, chief investment strategist at BMO Capital
Markets, says concerns about the consumer discretionary sector
remain elevated. The sector was the best performer of 2013, rising
41% compared with the S&P 500's 30% gain, according to
FactSet.
"Performance and valuation are stretched -- well beyond
historical norms -- and deteriorating fundamentals are NOT
helping," Belski wrote in a recent note.
Areas in consumer discretionary to avoid are hotels, restaurants
and leisure (expensive valuations, deteriorating operating metrics)
along with textiles, apparel and luxury goods (expensive
valuations, deteriorating EPS growth), Belski warned.
Investors will get a taste of consumer discretionary results in
the coming week with Netflix Inc. (NFLX) and Coach Inc. (COH)
reporting Wednesday. On Thursday, Dow-component McDonald's Corp.
(MCD) Starbucks Corp. (SBUX) and auto-parts maker Johnson Controls
Inc. (JCI)
Earnings, however, should still grow in the mid-single digits
for the S&P 500, and whether it's on account of financial
engineering or not, bottom-line results are what matter to
investors, Dan Greenhaus, chief global strategist at BTIG.
"What matters for stock prices is earnings," Greenhaus said.
While earnings have recently come under fire as being easily
manipulated and that revenue is a truer metric of growth, Greenhaus
countered that revenue growth hardly matters if a company can't
improve its costs.
But as the economy shows improvement, investors are going to
expect companies to use those earnings for more than buybacks and
dividends. Capital expenditures are going to be a big focus in
2014, Greenhaus said.
"Over time, CEOs are going to have to invest in something or
other, one would hope," Greenhaus said.
Other Dow components scheduled to report this week include
Johnson & Johnson Inc.(JNJ), Verizon Communications Inc.(VZ),
International Business Machines Corp.(IBM), and Travelers Cos.
(TRV) on Tuesday.
On Wednesday, United Technologies Corp. (UTX) reports, with
Microsoft Corp. (MSFT) on Thursday, and Procter & Gamble Co.
(PG) on Friday.
Tech shares, even with a pullback in Intel Corp.'s (INTC) stock
on Friday, outperformed last week. The tech sector rose more than
1% in the week ended Friday, the best of the S&P 500's 10
sectors.
Other notable earnings reports include those from eBay
Inc.(EBAY), Abbott Laboratories(ABT), Union Pacific Corp.(UNP),
Bristol-Myers Squibb Co.(BMY), and Kimberly-Clark Corp. (KMB)
This week will be a light week as far as economic data goes.
Other than weekly jobless claims, December existing home sales data
will be released on Thursday.
Also, the World Economic Forum will be hosting its annual
meeting this week in Davos, Switzerland. Last week, the WEF said in
a report the growing disparity between the world's rich and poor
has the greatest likelihood to cause serious global damage.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires