NEW YORK (
) -- However the December jobs report
, the major U.S. stock indices are off to a promising start in 2012, and at least one observer thinks the charts bode well for a near-term bull run.
"Both the DJIA and the S&P 500 have broken out from inverse head-and-shoulders (H&S) formations, suggesting to us that we are about to embark on another leg higher," said Mark Arbeter, chief technical strategist at
S&P Capital IQ
, in commentary on Thursday. "We continue to view equities in a positive vein, and believe that the risk is to the upside."
Arbeter said the pattern points to "a measured move to the 1,350 to 1,370 region in the first quarter" for the
, which settled Thursday at 1281. Support is in the 1260-1265 area. He noted that 1370 represents the market's 2011 top in early May, and said the index would likely run into some resistance at around 1313.
A strong earnings season wouldn't hurt the cause and Wall Street will be getting some meaningful reports soon enough with
up on Jan. 9, and
kicking things off for the big banks on Jan. 13.
If the broad market is indeed going to make a meaningful push to the upside, the bulls would like to see the financials start to pull their weight. Thursday's rally was a start but that was predicated on the
, not improving fundamentals. At the same time, there is some sentiment out there that 2012 could be kinder to the banks than 2011 was.
BMO Capital Markets may have headlined its 2012 outlook piece, "It's Deja Vu Once More," which doesn't seem very optimistic on the surface, but the firm seems to be erring on the side of caution.
Most of the commentary is positive. BMO says it's "actually raising some of our 2012 EPS estimates for the first time, after consistently cutting them for most of 2011" and it bumped up its view of total loan growth for the regional banks next year to 6% from 3% while forecasting diminished margin pressure.
This should result in positive revenue growth (although only 1%) for the regional banks, which will be considered 'higher-quality' earnings as compared to reserve releases," the firm writes, listing
Fifth Third Bancorp
as its top picks in the regional space.
BMO Capital also expects credit quality to keep improving "but at a slower pace" in 2012 and says the industry could see some consolidation as well.
We believe that traditional M&A could pick up with more clarity on U.S. capital rules and slightly better earnings visibility," the firm writes.
Among the small-cap banks,
Cathay General Bancorp
East West Bancorp
are BMO Capital's top picks.
Overall though, the firm has a market perform rating on the sector, showing restraint because of two looming macro questions.
Our optimism is tempered by two big risks: the contagion effect of a potential global showdown and a stalemate among political parties in the U.S. government during an election year -- both of which could stall the U.S. economic recovery again in 2012," BMO Capital writes.
The big banks, led by
Bank of America
(back above $6!) and JPMorgan, roared higher on Thursday with speculation swirling that more mortgage refinancing help from the federal government could be on the way but
if the plan isn't forthcoming, as now appears to be the case.
All in all, it may still be a while before the financials are capable of showing any real leadership because of the shadow cast by Europe's uncertainty. The regionals look like a better play here because they are benefiting from the trends outlined by BMO but have limited exposure to events across the pond.
At the same time, it's hard to overstate the importance of healing the big banks for the broad market as a
of the earnings growth expected in 2012 is seen coming from the group.
Meantime, the federal government's December employment situation report is Friday's big event at 8:30 a.m. ET. The job market continued to show signs of life on Thursday with Automatic Data Processing saying the economy added 325,000 jobs in December, well above market expectations of 180,000, and weekly initial claims coming in at 372,000, keeping some distance from the 400K level that was status quo for the majority of 2011.
Ian Shepherdson, chief U.S. economist, at
High Frequency Economics
, said he was "optimistic" after the claims data but noted there's still a lot of work to be done.
"With claims now at or around 370K in three of the past four weeks, it is clear that the trend has shifted abruptly downwards," he wrote in commentary earlier on Thursday. "We think business feared the worst in the fall in the wake of the plunge in consumer confidence, but with spending holding up much better than they expected the flow of new layoffs has slowed markedly. Claims need to fall further, though, if payroll gains are to reach the sustained 250K+ pace required to bring down the unemployment rate quickly."
The market is expecting nonfarm payrolls to swell by 150,000 in December, according to
, with the unemployment rate seen ticking up to 8.7% from 8.6% last month.
John Canally, economist at LPL Financial, noted that there is a track record of over-the-top optimism about the December report with payrolls missing the consensus in eight of the past nine years by an average of 60K, so be warned.
For its part, research firm
, headquartered in London, didn't put much stock in the blowout number from ADP and its expectations for tomorrow's data matches the consensus.
"As the US ADP survey has a tendency to overstate employment in December, the325,000 leap on the ADP measure last month does not change our forecast that official non-farm payrolls rose by around 150,000," wrote analyst Paul Dales. "Nonetheless,even a 150,000 increase would be a marked improvement from the stagnation in the summer and would beat November's 120,000 rise."
Friday is very quiet on the earnings front with reports due from
, and a handful of others.
RF Micro Devices
, forecasting a 10% shortfall in its quarterly revenue and a deep gross margin hit. The company said demand for 3G/4G smartphone components remains robust but that sales of 2G components used in entry-level handsets were below expectations.
Other big movers in the extended session included
, which announced plans for a stock sale; and
, whose outlook for the current quarter was below consensus, reflecting increased advertising expenses.
Written by Michael Baron in New York.
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