Randy Frederick, managing director of active trading and derivatives at Charles Schwab, said he has been expecting a selloff for the past several weeks, but he is not negative on the market and still expects to see the S&P end the year at 1,900.
"I do think this correction would be a healthy thing. There was some technical support at 1,848. We ploughed through there today, and that's gone," Frederick said, adding he is now watching the 100-day moving average at 1,828.
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Meanwhile, the start of earnings season parallels a shift to negativity about stocks. Earnings are expected to grow by 1 percent for the S&P 500, while revenues are expected to grow 2.7 percent, according to Thomson Reuters. The S&P financial sector is expected to be one of the worst performers, with an earnings decline of 2.8 percent.
"I don't think any individual name is very critical but if the trend is negative, and we see big names missing, that will add to the pessimism," he said. "If they're weak, it won't do the market any good. My expectation was we'd see better revenues and weaker earnings per share. The big surprise will be if we have lower earnings and lower revenues."
Frederick said the drop off in share buybacks may also affect earnings, and this quarter there could be a decline in buybacks. As companies buy their stock, their float shrinks, driving up the amount of earnings applied to each share. A reversal of that trend would eliminate some of the earnings growth rate.
"That's part of what will cause the EPS to be a little lower. It means they're either hiring or spending it ... in the long run, that's good," he said.
Rafferty Capital analyst Dick Bove agrees the slowdown of share buybacks could impact earnings and also the stock market this year. He said the stock market will be impacted by fewer buybacks just as the Fed is removing liquidity.
Bove, vice president of equity research, financial sector, said J.P. Morgan earnings could show someoperational weakness, and Wells Fargo could continue its string of record profits
According to Thomson Reuters, JPMorgan is expected to earn $1.40 per share on revenues of $24.5 billion. The consensus for Wells Fargo is 96 cents per share on revenues of $20.595 billion.
Bove said the other major banks—Citigroup and Bank of America—are both expected to be hit by fines, but the midrange banks should have decent earnings, with a good lending environment and costs under control.
"Companies like U.S. Bancorp, PNC, Regents Financial, Suntrust—the banks that are midrange, should have good earnings in the quarter," he said.
Bove said the other major banks – Citigroup and Bank of America – are both expected to be hit by fines, but the mid-range banks should have decent earnings, with a good lending environment and costs under control.
The sector is undervalued, he said. "They're selling about half of what their normal valuation would be on a price-to-book basis," he said. "They should sell around two times book and they're selling around 1 time book value."