Market Insider

Thursday: After HP, Focus Turns to Wal-Mart, Data

Hewlett-Packard's better-than-expected earnings and outlook could be a plus for stocks, which will also key off of Wal-Mart's earnings, inflation data and weekly jobless claims on Thursday.

A trader on the floor of the New York Stock Exchange executes a trade with his NYSE E-Broker.

Hewlett-Packard's profits rose 25 percent, and the company raised its forecast for the year in an after-the-bell report. For the quarter, HP earned $1.10 per share, excluding items, compared to an estimated $1.06 on revenues of $31.2 billion, well above the expected $30 billion. HP said its share of the pc market grew by 4 percent. Rival Dell reports after Thursday's bell.

Stocks traded in a narrow range Wednesday but finished higher for a second day. The Dow was up 40, or 0.4 percent to 10,309, while the S&P 500 was up 4 at 1099.

Despite the move higher since Tuesday, Execution LLC's Tim Smalls says the recent down swing may continue for a bit, but there's been a reprieve this week. "I don't thnk it's over...We went down 9 percent which was two percent less than what we had been calling for, and I think for as long as we can stay above 1053/10555 on the S and P, then we're in a trading range. If we break below that then we're still in correction phase," he said.

"People are on vacation. Schools are closed, and we have options expirations," he said, adding that volume was lighter this week than last week. "...The momentum is higher because the path of least resistance is higher right now."

Smalls said HP could help the market Thursday. "(Earnings) numbers have been really surprisingly good. Even the guidance that has been cautious hasn't been bad," he said. He noted Deere, which reported Wednesday, also beat forecasts and raised its outlook for 2010, driving its stock 5 percent higher.

Whither Stocks

Ed Keon says the earnings story is one reason to stay somewhat bullish on stocks for the time being. Or in his case, he describes his view for the past six months as "nervously bullish."

"I would expect at least another several quarters of pretty good profit growth," said Keon, who is managing director and portfolio manager at Quantitative Management Associates.

"We're a little overweight stocks relative to bonds and within stocks, we tilt toward higher beta areas like emerging markets," he said. He also likes tech because of the exposure to the global economy. "They've got good growth prospects. Valuations are a premium compared to the broad market but you're getting well-managed companies with strong productivity growth and strong balance sheets," he said.

One sector that is difficult to gauge is the financial sector. "How much profit is going both be constrained by new rules and regulations and increasing capital requirements? Nobody knows yet. That's still a big concern, a big unknown.," he said.

Keon expects the market to continue to move higher over the course of the year. "Our sense is the economy is recovering at a modest clip. We're in line with the consensus, but there's maybe a bit more potential for upside than downside," he said.

"We're not pounding the table by any means, but we think the upside is greater than the downside risk, but the downside risk is all around us..Somehow I think Greece, our financial crisis, political paralysis in the United States.. are all connected. The developed world had a wonderful period of growth after World War II a, the baby boom and the unprecedented several decades of peace and prosperity. Now we're facing an aging population and slower growth, relative to other parts of the world, and it's a lot easier to doel out slices of  a growing pie than it is to deal out slices in a shrinking pie," he said.

As a result, he said investors will have to be more nimble and not just rely on things like the traditional 60/40 stocks to bond portfolio balance. For instance, he had recommended overweighting commodities but recently pulled back a bit on that recommendation.

What Else to Watch

Weekly jobless claims and the January producer price index are released at 8:30 a.m. The Philadelphia Fed Survey is released at 10 a.m. Besides Wal-mart, Apache Oil, AXA, Barrick Gold, Noble Energy, Williams Cos, and Hormel report before the bell. Intuit, Dell and CBS report after the close.

Companies Reporting Thursday

Atlanta Fed President Dennis Lockhart speaks at 7 p.m. in Augusta, Ga., and St. Louis Fed President James Bullard speaks at the Economics Club of Memphis.

President Obama meets with the Dalai Lama at the White House.

Fed Ahead

The Fed's disclosure of minutes from its last meeting Wednesday afternoon sent ripples through the bond market, as traders debated whether the Fed would move sooner or later to unwind some of its emergency programs through asset sales and other moves. The report showed the Fed's next move will probably be an increase in the discount rate, the rate the Fed charges on emegency lons to banks.

"I think the market got a little shaken by the minutes and how strong the side is that wants to undo the balance sheet, and how strong they feel about it. There's going to be a battle," said John Spinello, Treasury strategist at Jefferies and Co.

"You've got (Fed Chairman Ben) Bernanke and (New York Fed President William) Dudley, who probably don't want to do it immediately, and on the other side you have (Kansas City Fed President Thomas) Hoenig and whoever else is on he hawkish side who wants to get t the stuff off the balance sheet as fast as they can," he said.

Treasurys fell on the day, with the yield on the 10-year rising to 3.742 percent, its highest level since Jan. 13.

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