NEW YORK (

TheStreet

) -- The major U.S. equity indexes have been downshifting as first-quarter earnings season draws to an end, and it's risky for investors to ignore market trends.

Adding in Tuesday's

mild decline

, the

Dow Jones Industrial Average

has now pulled back 2% in just the past three sessions. While the concerns about debt difficulties in Europe are valid, they are hardly surprising, so there has been a little bit of hand wringing going on about what's fueling this latest round of selling.

S&P Equity Research issued a note on Monday that points out a few flaws with the thesis that the bull market equities have enjoyed since March 2009 is about to end: Mainly that price-to-earnings multiples are still reasonable on a historical basis and expectations for a continued (albeit slow) economic recovery remain intact.

"All of this talk of possible corrective action in the equity markets implies that many of the market's fundamental assumptions have changed in less than a month," wrote Sam Stovall, chief investment strategist at S&P. "Yet from a top-down perspective, our economic outlook is still similar to last month's, as we see 2.7% growth in real U.S. GDP in 2011, and 2.8% in 2012."

Stovall went on to point out that, based on estimates compiled by S&P and CapitalIQ, the consensus profit forecasts for the

S&P 500

sit at $99.35 for 2011 and $112.50 for 2012, multiples that actually imply significant upside from here.

"Indeed, today's trailing 12-month multiple of 15X on the 2011 estimate could justify an end-of-year value of 1490, while a 14X multiple would indicate 1391," he said. The S&P 500, which is up 4.7% year-to-date, closed Tuesday at 1316. Food for thought.

Wednesday's economic calendar features durable goods orders for April at 8:30 a.m. ET. The consensus estimate of economists calls for a decline of 2% for the month vs. an increase of 2.5% in March and a surge of 4.1% last year, according to

Briefing.com

.

The market also gets the MBA mortgage index at 7:00 a.m. ET, which measures mortgage application volume for the week ended May 20; the FHA housing price index for March, and crude inventories at 10:30 a.m. ET.

The FHA number could be interesting after new home sales

surprised Wall Street with an increase in April

. So far in 2011, the FHA data has shown a cumulative decline of 2.6% through February.

The crude inventories data follows an

up day for oil

after Goldman Sachs lifted its price expectations for the next two years.

Yahoo

(YHOO)

, embattled since revealing a

dysfunctional relationship

with

Alibaba.com

(ALBCF.PK)

earlier this month, is holding an

investor day

, and CEO Carol Bartz is sure to be on the hot seat.

The stock is now down 3.4% year-to-date, having dropped 14% since hitting a 52-week high of $18.84 on May 9. Earnings last quarter were slightly above Wall Street's consensus view as the company is still struggling with its transition from a business model reliant on search and aggregation to becoming a more diverse force on the Internet, providing both services like email along with original content.

Costco Wholesale

(COST) - Get Report

headlines the latest batch of earnings reports. The Issaquah, Wash.-based warehouse retailer is projected to post earnings of 77 cents a share on revenue of $20.14 billion for its fiscal third quarter ended May 1, and it's topped consensus in three straight quarters.

Results from retailers have been rocky of late but Costco shares have held up well. The stock is up 14.4% year-to-date, hitting a 52-week high of $83.95 on May 20, as the company has seen strong same-store sales of late, including posting a 12% jump in April. Wall Street is split on the stock with 14 of the 27 analysts covering the shares at either strong buy (9) or buy 5), and the remainder split between hold (10) and underperform (3).

ThinkEquity, a bull on the stock with a buy rating and $90 price target, issued a note on May 18 previewing the results, saying it believes the company had a strong close to the quarter, but also cautioning that it feels improvement at Costco's Southern California locations is still a work in progress.

Jefferies was more optimistic in its May 12 research note, saying: "Costco remains the best positioned in our group to benefit from inflation. Not only does its average customer maintain above average income, but Costco is also the low price leader with great private brands and low gas price to drive traffic to the pumps and to the stores." The firm has a buy rating and a price target of $93. Costco reports before the opening bell.

Other S&P 500 components posting earnings on Wednesday include

NetApp

(NTAP) - Get Report

, projected to earn 53 cents a share in its fiscal fourth quarter on revenue of $1.39 billion;

Hormel Foods

(HRL) - Get Report

, consensus is for a profit of 40 cents a share on revenue of $1.82 billion in the April-ended quarter; and

Computer Sciences

(CSC)

, seen earning $1.11 a share in its fiscal fourth quarter on revenue of $4.22 billion; and

Polo Ralph Lauren

(RL) - Get Report

, projected to post a profit of 79 cents a share on sales of $1.39 billion.

Finally, Tuesday's

after-hours trading

featured a slide for

Applied Materials

(AMAT) - Get Report

after the tech giant issued a weak outlook; gains for

Take-Two Interactive

(TTWO) - Get Report

as it

reported a narrower than expected quarterly loss and locked in key creative personnel

; and slippage for

AIG

(AIG) - Get Report

after the insurance giant and the Treasury

priced a massive share offering at $29 each

.

--

Written by Michael Baron in New York.

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Michael Baron

.

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