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Market Preview: More Room to Run

There will be challenges, though, from a headline standpoint. As has been previously noted, first-quarter earnings season is going to be challenging.

According to Thomson Reuters, Wall Street is looking for earnings growth of just 3.2% in the period, down from analyst expectations of 10.2% on Oct. 3. There have also been an outsized number of warnings already, with 82 negative pre-announcements vs. 28 positive ones.

That makes for a negative/positive ratio of 2.9, the highest since the first quarter of 2009. More warnings are inevitable this week in the lull before reporting season really begins.

On the positive side of the ledger, the sell side seems confident the banks will deliver strong results and back up the 26% year-to-date jump in the KBW Bank Index (BKX).

Citigroup said Friday an improved fixed income trading environment should support its above-consensus earnings estimates for certain names.

The firm's top picks are JPMorgan Chase (JPM), which will be the first of the money-center banks to report on April 13, and Goldman Sachs (GS), which reports on April 17.

"Overall the tale of the 1Q appears to have been a 'risk-on' rally across markets from equities to credit to mortgages," the firm said.

But, the firm continued, trading and underwriting volumes remain relatively weak, with completed merger-and-acquisition, equity capital market and derivative capital markets 20% to 40% lower year over year.

In addition, U.S. equity trading volumes are down 15% from last year, while interest rate and foreign exchange volatility are "markedly lower" vs. a year ago, Citigroup added.

"Volumes aside, we take comfort that sharp downside risk from Europe seems to be off the table near-term -- which may encourage further re-risking, rising trading activity, and earnings momentum," Citigroup wrote.

Another source of concern is whether the economic data will hold up. A number of reports last week were less than stellar -- durable goods orders and consumer confidence, to name two -- and there's some feeling that the mild winter may have pulled forward growth from spring. This coming week will be pretty data-centric, building toward the March jobs report on Friday.

Then there's the global situation. The good feelings from Europe's long-term refinancing operation were starting to flag when eurozone leaders opted to boost the size of the region's bailout reserves on Friday, but the situation is still tenuous, and whether more backstopping is necessary will depend on how poor Europe's economy ultimately fares for the rest of the year. A hiccup in China is a worry as well.
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