It is time again for earnings. The fourth quarter data will start reporting this week it will shed new light on health of the US markets. Last weeks revisions to cut estimates by analyst resulted in a flat outlook for the fourth quarter reports. The hardest hit were technology, financials and basic materials. They were all cut more than 10%. Despite the revisions many are still optimistic about the quarter. We will know soon enough.
Just when you thought the fight was over on higher taxes… they have started anew. President Obama linked lower spending to IRS changes for the wealthy and corporations. I would like to say I am shocked, but really this is what is on the table going forward. I don’t expect the markets to react to the news because it is just that at this point, but at some point this becomes a big problem for the US economy and our sovereign debt ratings. This will remain one of those items we have to keep in mind.
Our Watch List for the week hasn’t changed from our update on Sunday. In the video update I outlined the key sectors to watch this week. Our focus turns back towards the US markets as earnings begin and we hit key resistance levels near the September highs. I am looking for a strong start to earnings as the financial stocks should shine. The technology stocks will provide the uncertainty. Large cap tech has been mixed, but if we can lean more towards the Oracle type of surprises than being disappointed it could be the catalyst to lead the broad indexes higher.
Outside of US stocks the commodities continue to stumble for direction. Oil has move to resistance near $93 a barrel again, natural gas is fading, gasoline prices are up and down, agriculture prices are flat to falling and precious metals want to move lower. This is a sector in transition currently.
Global stocks remain a positive, but I expect them to slow while the US markets play catch up short term. The upside remains in play and the opportunities remain going forward. Watch the emerging markets to take on more of leadership role going through 2013 as the global recovery from the financial crisis continues to unfold.
The key for the week is earnings and investor sentiment. Both are expected to be positive, but we have to remain cautious about the optimism towards growth in an economy currently moving at 2%. Thanks to how lean corporate balance sheets are the outlook is positive, but you still have to protect against the downside risk.