"Earnings
First-quarter earnings season is coming up and by all accounts should be pretty good. S&P 500 companies are projected to report profits up 14%, according to Thomson Reuters, with materials, industrials and energy companies leading the way. FactSet expects growth of about 12%.
Those aren’t stunning growth rates but they are fairly steady. So any surprises could be interpreted with more panic than usual, threatening to hurt investor sentiment.
The Fed
The Federal Reserve’s buying of Treasury bonds is expected to conclude around the end of the second quarter, which will cause a surge in speculation about whether the economy and markets can ride on their own without the training wheels of quantitative easing, or QE2.
Remember, last year in the weeks leading up to the start of QE2, the markets were weak on concern about more money flooding in, then soared once the buying started, against most expectations. As we near the end of June, more trading strategies will become tied to this event.
Europe
Europe is still a shambles, with Ireland’s news Thursday that its banks need more money only the latest headline reminding us that the debt crisis isn’t over, at least in some countries. My sense is that stocks have moved past concerns about European banks and worries about an imminent collapse of the euro, but bailouts in Ireland and Portugal and any sense that things might spread to Spain or Italy could lead to some profit-taking ahead of the European summer vacation.
China
Everybody thinks China is tightening its grip on bank lending and rates and that will lead a slowdown in economic growth there this summer that might affect commodities prices, from oil to rare earths. Since when did anybody ever call China right? The surprising correlation in expectations exposes investors to a big surprise, especially if it’s political or social. Also, The Chinese tech companies are hugely overpriced compared to their Western rivals, so either they will come down or our own domestic tech stocks have a way to go. See story on Qihoo IPO Wednesday.
Oil
Oil prices continue to be volatile on Middle East and North Africa turmoil, particularly these days in Libya. While not enough to derail the economy, this highly unpredictable situation could still leap to the forefront of investor concerns if for some reason oil really spikes.
Washington
Finally, our own U.S. budget turmoil, with the U.S. government in danger of shutting down next week, remains a concern. While stocks rose the last time the government shut down in the 1990s — hey, at least they can’t cause trouble when they’re closed — Washington’s debt problems remain a big concern for markets. Ditto what happens to financial reform now that the big guns of the banking industry have turned their forces on weakening or killing Dodd-Frank. . . ."
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