Earnings pose the next hurdle for stocks
Earnings season could deliver the next round of bruises to a stock market that has been stalled since the start of the year.
Also very important are the stream of economic reports—from retail sales Tuesday to industrial production Friday—that could shed light on whether the shockingly bad December jobs report Friday was a sign of economic weakness or an outlier.
"I think the data is going to be benign," said Bob Doll, chief equity strategist at Nuveen Asset Management. "I think it's going to be more about earnings and whether companies can say they have a little visibility."
Doll said things could turn bad quickly if companies don't report that things are looking up when they issue earnings. He expects earnings growth to come in at 8 percent for the year. As for the market, he expects a more normal, volatile year of trading with smaller gains than last year. His S&P 500 target is 1950.
Doll expects a 10 percent correction in the stock market at some point this year but said it's not clear that earnings season would start it. It also is not likely that Federal Reserve tapering of its bond purchases would trigger a correction unless it sparks a quick jump in rates that spooks stocks, he added.
Stocks basically shrugged off the weak December jobs report, which showed just 74,000 nonfarm payrolls, the lowest number since January 2011. Economists had expected 200,000 jobs.
"That's how [it] should react," Doll said. "It's not consistent really with all the other data that's been coming out. It seems to me that economic growth is picking up, so earnings growth should be a bit better. I still think stocks are going to outperform other asset classes."
Stocks were mixed this week, with the S&P 500 up 0.6 percent, to 1,842; the index is down 0.3 percent for the year after a 30 percent surge in 2013. The Dow was off 0.2 percent for the week, to 16,437, but the Nasdaq was positive, up 1 percent at 4,174.
Analysts have said the market is ripe for profit-taking, and the earnings season is its first big test of the year.
Besides earnings, there will be plenty of opportunities in the coming week to hear companies discussing their outlooks: The health-care industry will attend the JPMorgan Health Care conference in San Francisco, starting Monday. Automakers will also be in the headlines, with the annual Detroit Auto show.
S&P 500 companies should see fourth-quarter profits rise by an overall 7.3 percent, according to Thomson Reuters. Revenues are expected to be flat, up less than half a percent.
Thomson Reuters reports that financials are expected to show more profit growth than any other sector, up 21 percent, and energy is expected to be the worst, down 8.1 percent because of volatile energy prices.
According to FactSet, insurers are helping to boost expectations for financial company earnings because of easy comparisons with the year-earlier quarter, which was affected by Hurricane Sandy.
Chevron set a disappointing tone for the energy sector Thursday, when it said that fourth-quarter profit is likely to be comparable to that of the third quarter—lower than analysts expect.
A flurry of Fed speeches are scheduled in the coming week, with an appearance Thursday at the Brookings Institutution by Fed Chairman Ben Bernanke, who will address the role of the Fed after the Great Recession.
Other speakers will be watched for comments on the direction of Fed policy, including Dallas Fed President Richard Fisher, a hawk who became a voting member this year.
Stephen Stanley, chief economist at Pierpont Securities, said the Fed is not likely to be affected by one weak jobs report and will maintain its plan to taper its $85 billion bond-buying program. St. Louis Fed President James Bullard said Friday that he expects the central bank to proceed with tapering and that the jobs number probably will be revised higher.
Stanley said, "I don't think their path in the near-term has a lot of mystery to it. ... The process of tapering … is more or less set. They may tweak it a little here and there along the way, but the bottom line is it's going to be a steady progression to zero."
The unemployment rate dropped to a surprise 6.7 percent and is now just 0.2 percent above the threshold at which the Fed said it could start raising rates. But Stanley said the Fed has talked down the idea that the unemployment level is a trigger point.
"I think that gives them enough flexibility that they could hold with that basic framework in place for a while," he said. "In some sense, at least for the next few months, it should be one of the quieter time frames for the Fed. ... Tapering is in place, and they likely will continue."
Stanley said the transition to a Fed led by Janet Yellen, who takes over after the January Fed meeting, will be interesting to watch. Her first public appearance may very well be the semiannual economic testimony the Fed chair delivers to Congress in February.
He added that in terms of the week's data, he expects retail sales to decline 0.1 percent, in big part because of soft auto sales.
"I don't think the underlying trend of payroll growth is 74,000," he said. "At the same time, I don't' think it's 241,000, either, and I think you have to fall back and look at the broad trends. The number has moved at 182,000 for the year and 183,000 for 2012. I think we're in the same growth path we've been in for three years."
What to watch
12:40 p.m. Atlanta Fed President Dennis Lockhart on economy
2:00 p.m. Federal budget
Earnings: JPMorgan Chase, Wells Fargo, Shaw Communications, Linear Tech
7:30 a.m. NFIB small business survey
8:30 a.m. Retail sales
8:30 a.m. Import prices
10:00 a.m. Business inventories
12:45 p.m. Philadelphia Fed President Charles Plosser
1:20 p.m. Dallas Fed President Richard Fisher on economy
Earnings: Bank of America, Fastenal, CSX, Kinder Morgan, Clarcor, Plexus
8:30 a.m. PPI
8:30 a.m. Empire State survey
12:50 p.m. Chicago Fed President Evans on economy and policy
2:00 p.m. Beige book
5:45 p.m. Atlanta Fed's Lockhart on economy and policy
Earnings: BlackRock, Citigroup, Goldman Sachs, Taiwan Semiconductors, UnitedHealth, BB&T, Charles Schwab, First Republic Bank, American Express, Intel, PNC Financial, Capital One, Sallie Mae, People's United, Skyworks Solutions
8:30 a.m. Initial claims
8:30 a.m. CPI
9:00 a.m. Treasury international capital flows data
9:15 a.m. San Francisco Fed President John Williams on zero rate policy
10:00 a.m. Philadelphia Fed survey
10:00 a.m. NAHB survey
11:10 a.m. Fed Chairman Ben Bernanke at Brookings Institution's Conference on Central Banking after the Great Recession
Earnings: General Electric, Morgan Stanley, Schlumberger, Bank of NY Mellon, Comerica, SunTrust, Wipro
8:30 a.m. Housing starts
9:15 a.m. Industrial production
9:55 a.m. Consumer sentiment
10:00 a.m. JOLTS
12:30 p.m. Richmond Fed President Jeffrey Lacker
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.