How will Wall Street respond in the comings week? Investors will certainly have quite a few signals... [+]
What can slow a bull market on a tear?
So far very little. Not a restrained consumer. Not a new crisis in Europe. Not unsettling labor data.
Well, investors will have a whole slew of new signals to digest in the next few weeks when they receive the first snapshot of corporate earnings in 2013. Alcoa, as it customarily does, kicks off the fun this afternoon and reports results after the Closing Bell.
Market participants are eyeing a number of trends that will provide some direction. FORBES studied and identified five to put on your radar.
1. Housing: Nothing built better profits last year than money in housing stocks. The S&P Global REIT Index returned 18.5% in the last 12 months. By contrast, the S&P 500 returned just 11.1%. What's more, homebuilders absolutely took off. Just look at the two largest in the U.S. Lennar (market cap: $7.6 billion) gained 49.9% to $39.34, and Pulte Group (market cap: $7.4 billion) increased 131.6% to $19.31. A smaller homebuilder, KB Home, was the most impressive, rising a whopping 154.7% to $21.09.
In the last few months, their gains have slowed. The S&P Global REIT is no longer shooting past the S&P 500's broader basket of stocks. The two indexes in the latest period returned nearly identical amounts (8.5% versus 8.9%). A more dour situation for some of the homebuilders. Lennar's 1.2% gain badly trails the market. So does Pulte's 5.3%. Though, KB Home is still posting strong increases. That stock increased 33.5%.
Housing data has mostly continued to show a rebounding housing market, meaning a bit of a disconnect between the housing stocks' performance and the economic numbers. The comments offered by these companies' executives on what they're seeing will help provide more information. As will seeing whether their numbers can meet Wall Street's increased expectations.
2. Europe: There's now a standard refrain in any comments offered by companies doing business in Europe. Expect sickly demand.
"Europe is a geography that everyone has their eyes on," says Lawrence Creatura, a portfolio manager at Federated Investor. "If Europe's recent difficulties," like the financial crisis in Cyprus and political unrest in Italy, "were to spread into the more developed European countries, then that could be a concern."
Already, a whole host of companies have told investors to tamp down enthusiasm. Wolfsburg, Germany-based Volkswagen says profit "will be clearly below" last year's level--that's why the car company is expanding aggressively into the U.S., China and Russia. Weakness in the European automative market also caused Goodyear Tire to slash its 2013 forecast. And Cummins said its sales could fall by as much as 5% because of lessened interest in its engines.
3. ...And The Global Economy In General: Problems haven't been confined to the Old World. Example: China's industrial slowdown have disrupted basic material providers. The Vanguard Materials exchange-traded fund (NYSEARCA:VAW) shows these woes. The ETF is up just 2.3% to the S&P 500's 8.9%.
South Texas Money Management's James Kee will look at the reports from cyclical stocks--like the one that Alcoa will provide today--for insight on the economy's health. Whether it's improving ... or still worsening. "I know the global economy went into a slowdown and most of the data shows it bottomned in September and October," he says. "I think a lot of people are looking at the cyclical names to get a sense of whether we're stabilizing." He adds that he doesn't usually look at telecom or utilities stocks for this information. Few, he says, have the global reach he wants to see. Global shipper FedEx is a commonly used bellwether, as is Wal-Mart, the world's largest retailer.
4. Fiscal Cliff and Sequester: Observers quickly blamed March's grim figure of 88,000 new jobs on higher payroll taxes and the sequester. Now, they'll pay careful attention to whether higher taxes again meant a dismal time for retail--Christmas numbers reflected just how much consumers cut back ahead of the possibility of higher taxes--and whether the sequester hurt defense firms.
"The first quarter, and the fourth quarter to some extent, had a lot of distortions: the uncertainty regarding the election outcome and whether we were going to see higher taxes," says Kee.
5. Management Forecasts: Of course looking to the future is the best move for the savvy investor. Federated's Creatura advises paying careful attention to executive comments for the rest of 2013 and their projected numbers. To see if anyone are willing to inch a degree toward optimism.
"Expectations management is one of the most important skills for modern management teams," he says. "To use a nuclear analogy, the executives today are the cockroaches and sharks that survived the economic winter. Everyone else who doesn't have this skill is already gone."
Reach Abram Brown at abrown@forbes.com.
