Market Preview: Cashing Out

Updated from 6:00 p.m. ET to include additional information about the after-hours session.

NEW YORK ( TheStreet) -- It's really starting to feel like things could go either way for the stock market in the coming months.

On the one hand, the economic data has been showing some cracks, most recently with a second straight disappointing initial jobless claims report, existing home sales for March coming in well short of consensus, and a not-so-robust Philly Fed read on manufacturing. That feeds right into the repeat of 2011 scenario that many investors fear.

At the same time, first-quarter earnings season has been largely better than expected so far, and Wall Street has shown a bit more patience with Spain than it previously did with Greece. The feeling remains that global economic growth will hold steady with China in glide mode and the United States doing its part.

Which issues Wall Street gives the most credence changes on a daily basis, but the bias seems to be growing more negative. After a spectacular calendar first quarter, the Dow Jones Industrial Average is down 1.9% this month; the S&P 500 has given back 2.2%; and the Nasdaq is off 2.7%.

A recent survey of fund managers by Bank of America Merrill Lynch showed that even the pros are getting nervous about how things are going to shake out. That reticence manifested itself in a big move into cash earlier this month with the poll finding a net 24% of asset allocators described themselves as overweight cash vs. just 6% in March. Average cash balances jumped 4.7%, the survey found.

Much of that cash appears to have come out of stocks with a net 26% of asset allocators overweight equities in April, down from 33% in March, B of A said.

Eurozone concerns have risen along with the stacks of cash crowding the sidelines. The poll, which was conducted from April 5-12 and included 256 participants with a total of more than $700 billion in assets under management, found that 54% of those surveyed picked European sovereign debt funding as the "number one tail risk" for the market, up from 38% in March; and that 63% of those polled believe Spain is likely to provide a "negative surprise" in 2012, up from 50% last month.

"Investors have moved to a more neutral position after positive shifts in sentiment and risk taking in the first quarter. We believe investors will retain a sense of caution throughout the second quarter," said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research, in a statement.

Meantime, the weak U.S. economic data of late continues to raise the stakes for next week's two-day meeting of the Federal Open Market Committee. Credit Suisse, however, took a longer view of the data, saying Thursday it thinks the central bank will stand pat for now.

"Stronger-than-expected economic data in the last six months or so is welcome news, surely to the 1.1 million Americans who gained payroll employment, and perhaps especially to the more dovish wing of the FOMC," the firm wrote. "The purpose of their ultra-accommodative monetary policy, after all, is to get the economy out of the doldrums. There is no particular urgency to change the prescription when the medicine is working."

Where there could be some market-moving headlines, Credit Suisse said, is in the FOMC's updated projections for the fed funds rate and economic data.

"It should come as no surprise if one or two of the already more hawkish Fed officials who believe policy should begin to tighten in 2014 or sooner move their preferred timetable to an even earlier timetable," the firm said. "Still-elevated unemployment, continued declines in home prices, the prospect of fiscal austerity, and the ever-present risk of a flare-up in European debt markets all suggest that the FOMC majority will continue to favor at least the current degree of monetary accommodation."

There is still a sense that the recent decline in the major U.S. equity indices wasn't quite deep or long enough to constitute a base to rally to new highs, especially with the economic data softening and the end of Operation Twist looming in June, so this week's renewed push to the downside may be a function of that from a technical standpoint.

Some pro-QE3 tweak to the language of the Fed's policy statement would likely be enough to keep equities afloat but it would be a stretch for the central bank to go that route now when it's still not clear which way the U.S. economic recovery is going to break from here.

As for Friday's scheduled news, there's no data to speak of but the market does get results from two more Dow components before the opening bell, McDonald's ( MCD) and General Electric ( GE).

McDonald's was the best performer among the blue chips in 2011, but the stock has been a laggard this year, losing 3%. The big news for the hamburger purveyor is that Jim Skinner plans to step down as chief executive officer after seven years at the end of June. The Oak Brook, Ill.-based company has named Don Thompson, the current president and chief operating officer as Skinner's successor.

Thompson is viewed as the safe, logical choice but his ascension hasn't sparked much interest in the stock, suggesting Wall Street is in wait-and-see mode for the moment. Tomorrow's conference call is a chance for Thompson to begin to articulate his vision for McDonald's future, so it should be required listening for curious shareholders.

As for McDonald's numbers, the current average estimate of analysts polled by Thomson Reuters is for earnings of $1.23 a share in the March-ended period on revenue of $6.54 billion. The company has topped the consensus view in the past eight quarters but doesn't exactly blow targets away with its average upside surprise coming in at less than 2% over that stretch.

Despite its underperformance this year, Mickey D's isn't exactly on the value menu. The shares currently trade at a forward price-to-earnings multiple of 15.3X vs. 13.4 for the S&P 500 as of last Friday's close. Competitor Wendy's International ( WEN) is more expensive though, trading at a forward P/E multiple of 20.9X.

The sell side is pretty bullish ahead of the report though with 19 of the 30 analysts covering the stock at strong buy (6) or buy (13), and the median 12-month price target at $107.50, implying potential upside of nearly 13% from Thursday's closing price at $95.28, which reflected a 2.1% decline on Wednesday.

Check out TheStreet's quote page for McDonald's for year-to-date share performance, analyst ratings, earnings estimates and much more.

Meanwhile, GE shares have fared better in 2012 than McDonald's but they've pulled back ahead of tomorrow's earnings report. The stock has gained 6% this year, but it's down 9% as of Wednesday's close at $19.14 since hitting a 52-week high of $21 on March 28.

The average estimate of analysts polled by Thomson Reuters is for a profit of 33 cents a share from GE in the March-ended quarter on revenue of $34.7 billion. An in-line performance represent a 10% decline on the top line from year-ago revenue of $38.45 billion as well as be its lowest quarterly revenue total in at least five years.

Under Armour ( UA) is also one to watch on Friday with shares of the athletic apparel company up 35% in 2012, hitting a 52-week high of $99.35 on March 26. Wall Street's consensus view is for a profit of 24 cents a share from Under Armour in the first quarter on revenue of $379.8 million.

Jefferies has a hold rating on the stock with a price target of $82, and the firm said Wednesday it's on the sidelines ahead of the report.

"We see modest downside risk ahead of 1Q12," Jefferies wrote. "Expectations are high with the stock up 30% since reporting 4Q, entirely on multiple expansion. That said, the market is looking past risks like high inventory and reduced sales visibility. Barring a broader market pullback, we expect overly positive sentiment to keep the stock in the $90s. We remain on the sidelines given the full valuation and sub-optimal top-line visibility."

The firm is also expecting earnings of 24 cents a share for the quarter and says it believes any beat would have to come from margin strength because the revenue view is already high. It feels Under Armour may be enjoying an outsize benefit from optimism about names like Nike ( NKE) and Lululemon Athletica ( LULU) that it doesn't quite merit.

"There is no question UA, as a leading athletic brand, is due its share of the strong athletic cycle that we are in," Jefferies said. "That said, there are many company-specific drivers at NKE and LULU tht should not benefit UA."

Check out TheStreet's quote page for Under Armour for year-to-date share performance, analyst ratings, earnings estimates and much more.

Other brand names reporting Friday morning include A.O. Smith ( AOS), American Electric Power ( AEP), Honeywell International ( HON), Ingersoll-Rand ( IR), Johnson Controls ( JCI), Kimberly-Clark ( KMB), Manpower ( MAN), Popular Inc. ( BPOP), Royal Caribbean Cruises ( RCL), and Schlumberger ( SLB).

And finally, Microsoft ( MSFT) should provide some early support for the Dow after the Redmond, Wash.-based software giant beat the average analysts' estimate for its fiscal third-quarter earnings by more than 5%.

Revenue of $17.4 billion easily eclipsed the consensus view of $17.2 billion as Microsoft said it experienced solid demand for its business desktop and infrastructure product offerings. The stock rose 3% to $31.89 in the extended session on volume of more than 3.8 million.

The big tech loser in late trades was Riverbed Technology ( RVBD), which lost 17.4% to $23 on volume of 2.2 million in late trades after missing Wall Street's revenue expectations in its first quarter.

-- Written by Michael Baron in New York.

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