Market Insider: Wednesday Look Ahead

Stocks are struggling against a wave of economic and earnings news, but traders say it's not a bad thing that the market is giving up gains this week.

"I think we're in a multi-day pull back," said Art Cashin, director of floor operations at UBS. "At the very least, we'll get to see how it (the market) looks. If you turned bullish, buying the dips is the new strategy, rather than selling the rallies."

From 'Fast Money':

The Dow fell Tuesday to 7920, a decline of 137 points, or 1.7 percent, while the S&P 500 slipped 2 percent, or 17 points to 841. The Nasdaq fell 27 to 1625. Traders say the selling is healthy because it helps the market build a base, and financial shares have been due for a decline after ramping up in part on a short squeeze.

Financials took the brunt of selling, falling more than 7.5 percent. Goldman Sachs , which released better-than-expected earnings Monday, declined more than 11 percent. The company issued $5 billion in new shares, funds it hopes to use to repay the government's TARP program once it is clear of the government's bank stress test.

But the offering priced at $123 while Goldman finished the day at just $115.40. "People are starting to rethink it," said Cashin of Goldman earnings win ."It wasn't just opportunistic. It seemed to be a narrow area of the business."

On Wednesday, Intel could be a factor after its better-than-expected earnings report, released after Tuesday's close. Intel reported earnings of $0.11 per share, better than the $0.03 per share expected. The company reported a much lower effective tax rate and revenues of $7.15 billion, a decline of 13 percent from the previous quarter. Operating income was $670 million, and its gross margin was 46 percent, down 7 points.

Intel though also made a surprising comment about the outlook, compared to the cautious tone from most of corporate America these days. The company said it believes personal computer sales bottomed in the first quarter, and the industry is returning to normal seasonal patterns. It also said it expects revenues to be flat in the current quarter.

Earnings reports are expected Wednesday from Abbott Labs , AMR and Peabody Energy .


There are a number of economic reports Wednesday, including the consumer price index and the Empire State manufacturing survey, both at 8:30 am. The Treasury's international capital flow data is released at 9 a.m. and industrial production is at 9:15 am. The National Association of Home Builders release their survey at 1 pm., and the Fed's beige book on economic conditions is reported at 2 pm.

Whether the economy is showing signs of bottoming has been the topic of much debate on Wall Street in the past several weeks and has been at the very heart of the stock market's five-week rally. President Obama Tuesday repeated his recent comments that there are beginning to be "glimmers of hope" but that the economy is still not out of the woods.

Fed Chairman Ben Bernanke, in a speech at Morehouse College Tuesday, said the latest housing and consumer data shows the rapid contraction of the economy could be slowing down.

Despite this talk, stocks closed lower as a weaker-than-expected retail sales report renewed worry about the economy.

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Citigroup economist Steven Wieting said despite the unexpected 1.1 percent decline in March retail sales, the report still shows a stabilizing in the economy. Sales were also revised for January and February. The numbers show core sales rose 3.3 percent annualized for the first quarter, when compared to the record 9.2 percent decline in core retail sales in the fourth quarter.

"I think in the real world, spending is weak but stabilizing. That is a good first step for the rest of what we're seeing in the data," he said.

Wieting said he expected headline CPI to come in at zero. "The important thing about the CPI data is gasoline is just not moving up with seasonal norms.. We are fortunately not burdening weak consumer incomes with price inflation..It's a good thing at this stage," he said. Wieiting said in the year from last July, when prices gasoline peaked, to this coming July, consumer gasoline outlays would have declined $225 billion from what they could have been.

Wieting said while he sees signs of stability, he does not see a sharp snap back recovery. "Folks that talk about a V-shaped recovery are really scaring me. We have contracted at a remarkable clip. We're showing reasonable signs of stability in the same forces that dragged us down. To burden us with high expectations would be a problem. I would not want to tell anyone we are growing. We are not, but we are stabilizing," he said.

Wieting expects GDP to decline five percent in the first quarter and about 2 percent in the second quarter.

Byron Wien, Pequot Capital chief investment strategist, said he believes the stock market bottomed in early March but not so the economy.

"It's too soon to see a definitive turn. You're going to see good news and bad news. The important thing is how the market responds to the bad news," he said, in an interview after his appearance on "Squawk Box."

"The market bottoms before the economy. I expect more bad news," Wien explained, but he did say it appears there is a deceleration of bad news. He said one factor that seems to have been a positive was President Obama's G-20 trip earlier this month. He said while he did not get European agreement on stimulus the president did make diplomatic strides, including with Russia.

"He regained respect for America and that helped the stock market," said Wien. Wien expects the stock market to finish the year with a gain.

Questions? Comments?