PREVIEW-Strong US earnings foreseen, but may be priced in

(Refiles to fix date in dateline)

By Caroline Valetkevitch

NEW YORK, April 8 (BestGrowthStock) – U.S. corporate earnings
should top forecasts again in the first quarter, but the
extent of the stock market’s rally means investors are
expecting a lot from companies.

Standard & Poor’s 500 (.SPX: ) companies’ first-quarter
profits are seen up 36.8 percent versus a year ago, which
would be a second straight quarter of year-over-year profit
growth, according to Thomson Reuters data. The fourth quarter
marked the first of year-over-year gains since 2007’s second
quarter.

“We’re going to see a healthy number of positive earnings
surprises,” said Fred Dickson, chief market strategist at D.A.
Davidson & Co. in Lake Oswego, Oregon. “We’re seeing stronger
economic data than what we expected, and that should translate
into a little bit better revenue growth.”

Still, investors are anxious to see if companies can beat
expectations enough to push stock indexes even higher. The S&P
500 now is up 75.4 percent from its March 2009 closing low.

But strategists say much of the enthusiasm for quarterly
profits may already be factored into lofty stock prices.

Stocks could be in danger of repeating the previous
earnings period, when investors would sell even after strong
reports. The S&P 500 lost roughly 3 percent during earnings
season.

“I don’t think (earnings) will move the needle,” said
Joseph Battipaglia, market strategist at Stifel Nicolaus in
Yardley, Pennsylvania.

“That’s not a bad thing. It’s just that we’ve gotten away
from a worst-case scenario to what I would consider a
best-case scenario, and now it’s a lot harder to justify
higher stock prices.”

Of late, momentum indicators and short-term moving
averages suggest the major indexes are becoming overextended.

The Dow Jones industrial average (.DJI: ) and the S&P 500
are at 18-month highs, and the Dow has come close to hitting
the 11,000 mark.

Historically, the market performs better in the
off-earnings season than during earnings, according to Bespoke
Investment Group of Harrison, New York.

The S&P 500 is up 6.8 percent since the last earnings
season ended.

CORPORATE CONFIDENCE IMPROVES

Dow component Alcoa Inc (AA.N: ) kicks off the reporting
period with results after Monday’s close. Results are also
expected next week from tech heavyweights Intel Corp (INTC.O: )
and Google (GOOG.O: ), as well as from General Electric (GE.N: ).

Pre-announcements heading into the reporting period show
more positive outlooks than average and fewer negative ones,
indicating company executives feel confident about results and
analysts’ estimates.

The negative-to-positive pre-announcement ratio is at 1.3,
well below the long-term average of 2.1, said John Butters,
director of U.S. earnings for Thomson Reuters.

The news follows a strong fourth quarter in which 9.7
percent of companies raised outlooks and 5.2 percent lowered
outlooks — the widest spread since 2001 — in another sign of
improved confidence, according to Bespoke.

First-quarter revenue is seen rising 10 percent, which
would be an improvement from 8 percent growth in the fourth
quarter, Thomson Reuters data showed.

While drastic cost cutting has let a much
higher-than-average percentage of companies beat analysts’
earnings estimates in recent quarters, revenue has been slower
to recover.

But some 70 percent of S&P 500 companies beat revenue
estimates for the fourth quarter — up from 59 percent beating
estimates for the third quarter.

On earnings, 72 percent of companies beat estimates, down
from a record 79 percent in the previous quarter but still
well above the 61 percent in a typical quarter, Thomson
Reuters data showed.

SIGNS OF A HEALTHIER ECONOMY

The improved economic outlook is driving higher
expectations. Non-farm payrolls added jobs in March, according
to government data released on Good Friday, while another
report this week showed the huge U.S. services sector grew at
its fastest pace in nearly four years.

On Thursday, retail chains posted a record rise in monthly
same-store sales for March. For details, see [ID:nN08170785]

“If you look at the stocks (of high-end retailers) …
they kind of indicate spending has come back. We definitely
saw it in the fourth quarter,” said Wall Street Strategies
analyst Brian Sozzi in New York.

Shares of Tiffany’s (TIF.N: ) are up 192 percent since the
S&P 500’s 12-1/2-year closing low hit on March 9, 2009.

Many S&P sectors are still benefitting from easy
year-over-year comparisons, Butters said.

The first quarter of 2009 marked the weakest period for
S&P 500 earnings since the first quarter of 2002, while the
fourth quarter was the worst since at least 1998, when Thomson
Reuters started tracking the data.

What a difference a year makes.

Sectors expected to lead this year’s first-quarter gains
are financials, estimated to have a 205.2 percent jump in
earnings from a year ago, followed by materials, seen posting
a 176.4 percent rise, and consumer discretionaries, estimated
to report a 114.8 percent gain.

“There’s not been a lot of profit warnings. I think the
markets are expecting good things,” said Nick Kalivas, vice
president of financial research and senior equity index
analyst at MF Global, in Chicago.

Stocks

(Reporting by Caroline Valetkevitch; Additional reporting by
Leah Schnurr; Editing by Jan Paschal)

PREVIEW-Strong US earnings foreseen, but may be priced in