The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By David Sterman NEW YORK ( StreetAuthority) -- When aluminum producer Alcoa ( AA) reported first-quarter results after the bell on Tuesday, earnings season was officially under way. What happens to stocks for the next two to three weeks will almost exclusively be a function of what major companies have to say about current business trends. Few investors will have time to focus on anything else -- but they should. Behind the scenes, a steady release of economic data -- especially regarding consumer, business and investor sentiment -- will dictate the trading mood well beyond the current earnings season. We just got a clear read on how small businesses are feeling. The NFIB Small Business Optimism Index, which I focused on last month, was released on April 10. The news is sobering. After six straight monthly gains, the index fell in March, thanks to a pullback in nine of the 10 components that make up the index. And the analysts at NFIB deliver a real wake-up call after parsing the data: "The mood of owners is subdued -- they just can't seem to shake off the uncertainties out there, and confidence that the management team in Washington can deal with them effectively is flagging. What we saw in March is painfully familiar -- this was the same pattern of growth followed by months of decline from 2011. History appears to be repeating itself -- and not in a good way." Follow TheStreet on Twitter and become a fan on Facebook. As I wrote a month ago, "this index actually spiked to 94 last January and February and then dropped back into the 80s. If you sold stocks in April after seeing the NFIB pullback in March 2011, then you would have avoided the heavy losses the market produced later that summer." The current reading of 92.5 isn't a disaster but the trend needs to be watched. Here's what else you should keep an eye on in coming weeks.
Will that happen? History is promising. After people send off their tax returns, often their next move is to replenish their retirement plans, so the second half of April and May are usually periods of net inflows to mutual funds. The key question: Will investors earmark those funds for equity funds and exchange-traded funds (ETFs) or bond mutual funds and ETFs? You can track the weekly flows here. According to Lipper, bonds are getting most of the love right now, as many investors failed to be seduced by the market's recent upturn.
Risks to Consider: It's crucial that you not fixate on one data point to dictate your next move. Economic data are notoriously erratic, and the trend is more important than any single reading. Action to Take --> Treat these data points as part of a mosaic. If all of them are pointing in the same direction, then you need to take heed. Friday's employment report was surely sobering, as was the just-released NFIB Small Business Optimism Index. Even as you track earnings season, keep an eye on these indicators and plan accordingly. Note: If you haven't heard about this unique opportunity, then I want to tell you about it now. StreetAuthority has staked me with $100,000 of real money to invest in my absolute best ideas. For a limited time, you'll be able to follow along with me completely free. Go here to learn more. David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of AA in one or more if its "real money" portfolios. Also see:
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