Then all eyes will turn to first-quarter earnings season, which officially kicks off after the bell Tuesday with Alcoa's ( AA) results.
NEW YORK ( TheStreet) -- Stock traders will play catch-up Monday as the market digests Friday's weaker-than-expected employment report.
Sam Stovall, chief equity strategist at Standard & Poor's Capital IQ, says that the markets might have "borrowed a bit too much from the future" and could be in the early stages of a widely anticipated pullback after the S&P 500 total return index reached an all-time high on April 2. But the decline will be modest, Stovall predicts. Once the retreat is complete, the market may rise to fresh highs given the possibility of earnings surprises. In a recent client note said that first-quarter earnings expectations had been set quite low. Independent analyst Brian Sozzi is among those approaching the new earnings season with a negative mindset after some below-consensus economic reports and negative forecasts from flash memory firm SanDisk ( SNDK) and several gold miners. He remains worried that Wall Street is still overshooting margin and profitability estimates, opening the door to disappointment. "It's the tendency of analysts to err on the side of optimism and buy into what the company is saying" rather than to add in the impact of macro trends, he explains. Cautionary macro indicators that Sozzi has identified include the dips in the new-order and export components of the Institute for Supply Management's report on the manufacturing sector's economic activity in March. They also include the superficially robust, official China Purchasing Managers' Index. Although the index jumped to 53.1 in March, the third month of the year often sees a seasonal jump, and the reading fell short of the 56 level typical for this time of year. Aluminum producer Alcoa may be the first company to report next week, but Sozzi will be focusing on railroad company CSX ( CSX). It reported earnings misses for two straight quarters but on March 15 projected record first-quarter earnings. Given the negative surprises from global macro data and industrial companies lately, CSX's results and outlook could be a "great tell" on whether to go against the recent market selloffs or proceed with caution, Sozzi advises. "I am locked and loaded on CSX instead of Alcoa," says Sozzi. But Ken Shreve, a RealMoney contributor and financial markets commentator, says he tends to take a glass-half-full approach to earnings because there are always bright spots even when expectations are low. Thomson Reuters now sees 3% profit growth from S&P 500 companies in the first quarter, down from an earlier estimate of 5.5% on Jan. 1 and 12.8% last July.
"Alcoa will get a lot of play, but I don't consider it that relevant a stock anymore; underperforming badly and questionable fundamentals at best," says Shreve. "I like to focus on innovative firms showing explosive earnings and sales growth. Alcoa falls very short here." Shreve is expecting a strong report from Google ( GOOG) and says both J.P. Morgan Chase ( JPM) and Wells Fargo ( WFC) continue to have decent technical levels ahead of their results. Overall, Thomson Reuters expects 5.9% earnings growth from the financial sector in the first quarter, down from expectations of 7.3% on Jan. 1. A lot of good news may already be priced into shares of J.B. Hunt Transport Services ( JBHT ), but good bottom-line and top-line growth is expected for the company, says Shreve. Gayed of Pension Partners says that the market has been behaving as if positive surprises are likely in the financial sector and negative surprises are likely in the materials sector, mainly because of concerns about a slowdown in the emerging economies. Meanwhile, March import and export prices are on Sozzi's watch list following the previous month's uneventful report. Although the market expects fewer signs of inflation in the underlying reports, Sozzi is more concerned, expecting to see some fuel-related bump in the import-price data. Shreve thinks there's still potential for continued softness in the market. "Excesses were built up in the first quarter that need to be worked through," he says. Shreve notes that the "line in the sand" for the S&P 500 is its 50-day simple moving average at 1370, while the Nasdaq Composite's 50-day moving average is at 2980. He regards the Nasdaq 100 as a noteworthy index to monitor because several of its components continue to show "uncanny strength," such as Apple ( AAPL ), Intuitive Surgical ( ISRG ), Priceline ( PCLN ), Qualcomm ( QCOM ), Fossil ( FOSL ) and Starbucks ( SBUX). -- Written by Andrea Tse in New York. >To contact the writer of this article, click here: Andrea Tse. >To follow the writer on Twitter, go to http://twitter.com/atwtse . >To submit a news tip, send an email to: firstname.lastname@example.org.