Waiting for Earnings, Markets Hit Pause After Big Rally

FOX Business: The Power to Prosper

The bulls on Wall Street refused to cede any significant ground on Tuesday, largely preserving Columbus Day’s 330-point surge on the Dow as traders express cautious optimism about the kickoff to earnings season.

Today's Markets

The Dow Jones Industrial Average fell 16.88 points, or 0.15%, to 11416.30, the Standard & Poor's 500 gained 0.65 points, or 0.05%, to 1195.54 and the Nasdaq Composite jumped 16.98 points, or 0.66%, to 2583.03. The FOX 50 added 2.09 points, or 0.24%, to 874.45.

After displaying some early caution, U.S. markets managed to shrug off concerns about Europe's debt crisis tied to Slovakia's parliament voting on the stronger euro-zone bailout package. By avoiding a kneejerk selloff, Wall Street managed to keep and even add onto its strongest performance in almost two months.

“You’d expect to see the market to give back some and it really hasn’t done that. It’s been very resilient to the downside,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

Traders are relieved earnings season began after Tuesday's closing bell, taking some of the attention away from the scary sovereign debt crisis in Europe and struggling U.S. economy. Aluminum maker Alcoa (NYSE:AA), which is traditionally the first Dow member to report results, is expected to say it earned 22 cents a share on revenue just north of $6 billion.

“I think investors are really looking forward to the kickoff to earnings season having a positive effect on this market,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners. “I think investors have a little more to look at right now than just that one movie out of Europe.”

Analysts have been trimming their forecasts for earnings as concerns of a double-dip recession increased last month. S&P 500 companies are expected to grow quarterly profits by 12.6% year-over-year, down from 17% on July 1, according to Thomson Reuters. Results from JPMorgan Chase (NYSE:JPM) and Google (NASDAQ:GOOG) are likely to make waves on Thursday.

Pado said at their current levels, stocks are pricing in a 10% decline in 2010 earnings -- a negative outcome few analysts are actually calling for.

“You’ve got this separation of the fear trade versus the rational mind,” said Pado. “Fear had won out to an extreme two weeks ago.”

Even though banks and the bond markets reopened after Monday's holiday, trading volume was very light on Tuesday, finishing just slightly above Columbus Day. The markets also saw very little volatility as the blue chips moved in a very tight trading range of just 82.19 points -- their narrowest range since July 30

“It seems like the uncertainty between both camps is keeping the market very tight right now," said Corpina.

Stocks did come under some early pressure on concerns that Slovakia's Parliament may reject the euro zone plan to increase the bailout fund to 440 euros ($600.34 billion). Slovakia is the last of the 17 nations that needs to approve the measure, which is seen as central to easing the crisis. However, the legislature can take the matter up again, likely under a different ruling government.

Policy makers must also decide how big of a haircut banks must take on their holdings of toxic Greek debt. According to Dow Jones Newswires, haircuts, or writedowns, of 40% to 60% are being mulled, well higher than the 21% tentatively agreed to in July.

“Yesterday was such an up day and there was so much euphoria tied to Europe. I think today people are sobering a little bit,” said Nick Kalivas, vice president of financial research at MF Global.

Tech stocks pushed the Nasdaq Composite solidly higher, making it the biggest winner of the major indexes. Apple (NASDAQ:AAPL) extended Monday's gains, rallying 3%. BlackBerry maker Research in Motion (NASDAQ:RIMM) jumped more than 5% as pressure from institutional shareholders to consider its strategic alternatives, such as a sale, continues to mount.

About half of the Dow's 30 stocks closed in the red, led by defensive plays Traveler's (NYSE:TRV) and AT&T (NYSE:T). The benchmark index's biggest percentage winners were cyclical stocks like Alcoa and Caterpillar (NYSE:CAT).

In the commodities complex, crude oil reversed early losses and closed up 40 cents a barrel, or 0.47%, to $85.81. Gold slid $9.80 a troy ounce, or 0.59%, to $1,661.00. Economically-sensitive copper snapped a four-day winning streak, falling 2.22% a pound to $3.2875.

Corporate Movers

Dollar Thrifty (NYSE:DTG) abandoned its long-standing plans to sell itself after the car rental service failed to come to terms with rivals Avis (NYSE:CAR) or Hertz (NYSE:HTZ).

99 Cents Only Stores (NYSE:NDN) inked a $1.6 billion deal to be acquired by Ares Management and Canada Pension Plan Investment board, trumping a rejected $1.3 billion bid from Leonard Green in March. The offer represents a 32% premium to 99 Cents' closing price the day before the Leonard offer was made public.

Global Markets

London's FTSE 100 slipped 0.06% to 5395.70, Germany's DAX gained 0.30% to 5865.01 and France's CAC 40 lost 0.25% to 3153.52.

In Asia, the Japanese Nikkei 225 rallied 1.95% and Hong Kong's Hang Seng leaped 2.43% to 18141.60.