Updated from 8:07 p.m. ET to include information on Disney's disclosure that it expects to record a $200 million loss related the 'John Carter' movie. NEW YORK ( TheStreet) -- Monday was a pretty standard session for the broad market in 2012. Stocks went up a little, volume was nondescript, and Apple ( AAPL) made big news, sending its shares to yet another all-time high. Par for the course, right? With the major U.S. equity indices already all up significantly from the October lows without any real pause, trepidation has fallen out of fashion to some extent but it pays to at least consider the factors that could trigger a round of profit-taking. Having already pointed out that this upcoming earnings season is going to be real test, given how little growth is expected, here's another tidbit to consider, courtesy Citigroup market strategist Tobias Levkovich, who noted the downside of the improving employment picture in commentary on Monday. "Critically, labor accounts for better than 60% of corporate cost and an improving job trend will bite into margins as workforce expenses are inversely related to corporate profits," he wrote. "And markets do trade off of margins, though the fear of peak margins appears priced in to some extent. Investors have been worried for a good while about corporate profit margins, yet they have liked the IT sector best for several years even as that area has soared above prior peaks with respect to margins. Conversely they have not liked Utilities or Telecom Services much and margins in these two sectors are well below prior peaks." Since the financial crisis hit, the surviving companies have pared back their workforces in response to the uncertain business environment. The extreme conditions made growing margins of paramount importance because the topline growth just wasn't there in many industries. Efficiency is what drove earnings growth in 2011 (for the most part). Now, while the employment data has finally started to show meaningful improvement over the past few months, it's still early stages. When companies do start hiring to expand again, their costs are going to ramp up ahead of any profits they expect to be able to glean from aforementioned expansion, and Wall Street will be watching. Earnings estimates for the S&P 500 are projecting just 2.8% growth from a year ago in the first quarter, down from an expectation for growth above 10% in early October, according to Thomson Reuters. That low view likely accounts for some increased hiring but (forgive the pun), a market that's up 25%-plus in the past six months or so won't have much margin for error.
Not to worry though. Levkovich also points out that the economic data may have gotten ahead of itself because of Old Man Winter took this year off. "Despite incontrovertible evidence that the fourth warmest winter on record has allowed some growth to be pulled forward from spring, investors have yet to witness any clear negative numbers to generate new concerns (and could stay so until late April)," he wrote. "It is fair to suspect some of these issues will show up in coming months and that investors will not be able to escape economic reality indefinitely." If that occurs, Levkovich said "the old adage of Sell in May and Go Away may recur." Meanwhile, the Apple juggernaut continues to roll. The stock hit a new peak of $601.77 during Monday's session after the company initiated a new dividend and announced plans to repurchase $10 billion worth of its common stock. Any complaints about the size of the forward annual yield -- 1.76% -- have to be viewed within the context of how far the shares have already run, appreciating 77% in the past year and 44% in 2012. After the closing bell, the company hit the trifecta, following the dividend/buyback news, with the disclosure that it sold a whopping 3 million of its new iPads over the weekend, the "strongest launch" of the product yet, according to a press release. Things have gotten so good for the company, UBS strategist Jonathan Golub, a market strategist, was prompted to do some analysis on Apple's awesomeness. His conclusion: The company's size and growth are still "modest" in comparison to past market high flyers and that it still seems to have a ways to go. "Apple generates more EPS per dollar of revenues (higher margins) and carries a higher multiple than any of its direct competitors in the PC or handset space," he wrote. "As a result, Apple's share gains create incremental market cap. Moreover, penetration is low (e.g., handsets and PCs) or growth is rapid (e.g., tablets) in each of Apple's key end markets, providing room for upside." Check out TheStreet's quote page for Apple for year-to-date share performance, analyst ratings, earnings estimates and much more.
As for Tuesday's scheduled news, Oracle ( ORCL) is the big earnings report. The database software giant is slated to report its fiscal third-quarter results after the closing bell, and the average estimate of analysts polled by Thomson Reuters is for earnings of 56 cents a share in the February-ended period on revenue of $9.02 billion. Oracle shares are up 15%-plus so far in 2012, participating in the broad market rally, but the stock is down 5.4% in the past year and is just getting back to where it was prior to the company's Dec. 20 fiscal second-quarter report, which came in short on both the top and bottom lines. This time around, Wall Street will be looking to see if the massive expansion of Oracle's sales force that took place in the first half of its fiscal year has paid off this past quarter. The success of the company's push into the cloud with products like its Fusion Cloud ERP
enterprise resource planning and Cloud CRM customer relationship management applications will also be closely scrutinized. The sell side is moderately bullish ahead of the numbers with 28 of the 42 analysts covering the stock at either strong buy (11) or buy (17), and the median 12-month price target at $32.75, implying potential upside of 11% from Monday's close at $29.76. At current levels, the stock is also 20%-plus below a 52-week high of $36.50 set back on May 3, 2011, and it trades at a forward price-to-earnings multiple of 11.6X vs. 20.4X for rival SAP ( SAP). Check out TheStreet's quote page for Oracle for year-to-date share performance, analyst ratings, earnings estimates and much more. Other notable reports on the docket include Cintas ( CTAS), Comverse Technology ( CMVT), DSW Inc. ( DSW), FSI International ( FSII), Heelys ( HLYS), Jabil Circuit ( JBL), J. Alexander's ( JAX), JA Solar ( JASO), Jefferies ( JEF), Krispy Kreme Doughnuts ( KKD), Omnova Solutions ( OMN), Pinnacle Airlines ( PNCL), SAIC Inc. ( SAI), and Tiffany & Co. ( TIF).
Tuesday's economic calendar features data on chain-store sales at 7 a.m. ET and housing starts and building permits for February at 8:30 a.m. ET. Ian Shepherdson, chief U.S. economist at High Frequency Economics, is looking for housing starts of 700,000 and permits at 686,000. "Permits are trending higher, but they have paused for breath in the past couple of months, so we should expect starts to follow suit in today's report for February," he wrote. "We expect single-family starts to drop, after overshooting the pace implied by permits in December and January, but multi-family starts need to start to catch up." And finally, Adobe Systems ( ADBE) was a big mover in the after-hours session after the company gave a soft outlook for its next quarter. Adobe met Wall Street's profit view for its fiscal first quarter ended in February but said it expects non-GAAP earnings of 57 to 61 cents a share for the second quarter ending in May vs. the current average analysts' estimate for a profit of 60 cents a share. The stock fell more than 4% in the extended session. Dow component Walt Disney ( DIS) also made news after the close, saying it expects to record an operating loss of $200 million from its Mars movie 'John Carter', which hasn't lived up to its budget. Not to be completely outdone by Apple, Amazon.com ( AMZN) also made some headlines of its own after the bell, agreeing to acquire privately held Kiva Systems, a maker of robotic package handling systems for $775 million in cash. -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron.