NEW YORK (MarketWatch) -- Wall Street is facing its first blitz of fourth-quarter earnings, with Bank of America Corp., General Electric Co. and Apple Inc. among the industry titans slated to report in coming days.
With the U.S. financial markets closed Monday for Martin Luther King Jr. Day, Wall Street's holiday-shortened week will start Tuesday, with iPhone maker Apple (AAPL) and Dow component International Business Machines (IBM) among the companies slated to report.
"We hope to see Intel's performance and tone repeated in the earnings out next week," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
The first major tech company to report fourth-quarter results, chip manufacturer Intel Corp. (INTC) late Thursday reported a 48% jump in profit in the fourth quarter, and it also offered a rosy outlook for early 2011.
But stocks last week ended in what many view as an overextended state, with the S&P 500 tallying a seventh consecutive week of gains, its longest stretch since May 2007.
And, with market sentiment strongly skewed to the bullish side, a chorus of market watchers believe a pullback or correction is coming.
"From a price-momentum standpoint, the S&P 500 is now overbought on both a daily and a weekly basis for the first time since April. While this does not preclude becoming more overbought, it does suggest to us that a ceiling is approaching," Sam Stovall, chief investment strategist at Standard & Poor's Equity Research, wrote in a midweek note.
Jeff Kleintop, chief market strategist at LPL Financial, concurred, saying that "overbought market conditions [and] the upcoming earnings season could again contribute to a flat-to-down stock market."
In the coming week, 49 companies among the Standard & Poor's 500 (SPX) are expected to report, with estimated share-weighted fourth-quarter earnings for index components standing at $206.2 billion Friday, below the prior week's $206.4 billion, according to Thomson Reuters analyst Christine Short.
Setting another 28-month high, the S&P 500 is within reach of 1,300, a level it last closed above on Aug. 28, 2008, when it finished at 1,300.68.
Energy and finance companies led last week's rise, with the duo performing best among S&P's 10 industry groups.
Energy companies gained as crude-oil futures neared $91 a barrel, with refiner Marathon Oil Corp. (MRO) among the notable risers.
Up nearly 11% for the week and almost 16% already in 2011, Marathon on Thursday said it would spin off its fuel-producing unit and create two independent energy firms.
Helping inflate market expectations were financial stocks, with large-cap finance companies expected to realize a 1,383% year-over-year increase in earnings, according to data compiled by Thomson Reuters.
The anticipated spike is being driven by comparatively low earnings last year and the fact that many banks are cutting reserves, money set aside to cover potential losses.
The scenario was lately illustrated by J.P. Morgan Chase & Co. (JPM) in earnings released Friday, and it could well be replayed in coming days with Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) scheduled to report, the latter on Wednesday and the former on Friday.
Setting an optimistic tone, banking powerhouse J.P. Morgan reported stronger-than-expected quarterly profit and revenue, boosting earnings by 30 cents a share by releasing $2 billion in reserves that had been set aside to cover credit-card losses.
But even if financial stocks were removed from the picture, earnings for large-cap companies would still look decent, with all but three sectors -- consumer staples, health care and utilities -- projected to report double-digit share-weighted profit growth, according to the American Association of Individual Investors, which based its conclusion on data from Thomson Reuters.
But one market watcher, Howard Silverblatt, senior index analyst at S&P Indices, said he'd be keeping close tabs on what companies forecast concerning 2011 sales. "Something just doesn't add up -- how do you get double-digit bottom-line growth with single-digit top-line growth?" he asked.
Either earnings estimates are too high or sales estimates are loo low, Silverblatt continued, "so I'm hoping it's sales."
KPL's Kleintop also sounded a cautionary note, saying that the companies that report early in the season "are most often not the bellwethers they are commonly thought to be."
"We will not really know how results are shaping up," he said, "until just after the end of the month, when about half of the S&P 500 companies will have reported."
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