J.P. Morgan U.S. equities strategist Thomas Lee said the market is more likely to end flattish than to sell off in May. "There's a lot of logic in 'sell in May' right now because a lot of people are waiting to see QE2 (quantitative easing) ending, and (the second quarter) is going to have some bumps because of supply chain problems, and we do have peripheral Europe and also (budget debate) in Washington...I see the reasons behind the bumpiness, but we have inflows right now into equities, which are supporting stocks," he said.
Brian Belski, chief investment strategist at Oppenheimer Asset Management, on the other hand, has been looking for a selloff. "Our forecast is for single digit returns this year. On New Year's Day 2012, when we look back at 2011, I think we're going to remember a pretty elevated level of volatility, as the bulls came back in spades, especially around earnings periods...The outlook still looks a little squishy. The Fed came out and looked dovish. Investors are too reliant on an accommodative Fed, and they're going to miss the forest for the trees. There's still a good chance the economy is going to slow down."
As earnings came in better than expected this quarter, analysts have raised earnings estimates for the year and beyond. Lee Friday said he raised his 2011 year end target on the S&P 500 to 1475 from 1425 based on improvements in profits. He now expects to see the S&P 500 earn $105 per share for 2012, up from $102, though he kept earnings per share of $96.50 in 2011.
Belski said too many investors are chasing the trades that have worked, like metals and the weaker dollar. "A lot of people are carrying very high tracking errors in materials and energy right now," he said. Materials shares are just 3 percent of the market, but some investors have made them a large part of their holdings.
"Large cap quality is the next thing," he said, noting he prefers technology and industrials. He does not like the financial sector, which was the only S&P sector to see a negative return for April, off 0.1 percent. The best performers were defensive — health care, up 6.4 percent, followed by consumer staples, up 5 percent. Tech was up just under 3 percent.
"Tech used to be a very highly volatile sector in terms of dispersion of returns. Now it's financials," he siad.
Lee, however, believes financials will turn around, and will help drive the market's final 25 percent retracement from its March, 2009 low, along with industrials and technology.
Another 100 S&P 500 companies report earnings in the week ahead. Humana , Echostar , DISH, Massey Energy, FMC, Chesapeake Energy and Anadarko report Monday.
Pfizer , Archer Daniels, Avon, Clorox, Duke Energy, Rowan Cos, Tenet Healthare, Molson Coors, Emerson Electric, Foster Wheeler, FirstEnergy, Hyatt, MasterCard, Teva, PG&E, Legg Mason and Marathon Oil report Tuesday morning. CNBC parent company Comcast , CBS, Green Mountain Coffee, Harris, McKesson and Cephalon report after the bell.
Wednesday's earnings include Anheuser-Busch InBev , KKR , Kellogg, Marsh and McLennan, Time Warner, Devon Energy, Garmin, Computer Sciences, Statoil, RR Donelley, BMC, Whole Foods, Transocean, Williams, Prudential Financial, JDS Uniphase and Electronic Arts.
Fortune Brands , CVS Caremark , El Paso, Estee Lauder, Sara Lee, Cigna, Fortress Investments, Aigras, Huntsman, AIG, Kraft Foods, Vale, Visa, Priceline.com, EOG and Fluor report Thursday.
Friday's releases include Berkshire Hathaway after the bell, and Alcatel Lucent , Constellation Energy, Liberty Media and Washington Post, before the open that day.
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