| NEW YORK, April 11
NEW YORK, April 11 The wrenching selloff in U.S.
high-growth technology and biotech shares could leave investors
braced for more than a minor pullback when earnings pick up
speed next week.
First-quarter earnings estimates have fallen sharply as many
companies have blamed the brutal winter for weak outlooks.
With high-valuation stocks under pressure, earnings could be
subjected to even more investor scrutiny than usual.
"There's skepticism among investors about the outlook, and
we're getting into the first-quarter earnings season, so you're
going to see some positioning," said Brian Jacobsen, chief
portfolio strategist at Wells Fargo Funds Management in
Menomonee Falls, Wisconsin.
Profit growth for Standard & Poor's 500 companies now is
expected to have increased just 0.9 percent in the first quarter
from a year ago, down from a Jan. 1 forecast for 6.5 percent
growth, Thomson Reuters data showed.
In the coming week, 54 S&P 500 companies are scheduled to
report first-quarter earnings. In comparison, 29 companies in
the S&P 500 had reported results through Friday.
Earnings are due next week from such high-profile names as
General Electric, Johnson & Johnson, Goldman
Sachs, Google and IBM.
Wall Street will get more readings on the U.S. economy in
the coming week, with retail sales on Monday, the Consumer Price
Index on Tuesday, U.S. housing starts and industrial output on
Wednesday and the Federal Reserve Bank of Philadelphia's
business activity index on Thursday. The latest weekly initial
jobless claims will also be released on Thursday.
This flurry of numbers will come during a four-day week. The
U.S. stock market will be closed for Good Friday.
Volume is also likely to be lighter than usual with some
participants away for the observance of Passover, which will
begin at sundown on Monday.
BLUE CHIPS BACK IN STYLE
A move into blue chips is one trend emerging after the
market's slide, which pushed the Nasdaq on Friday to a close
below 4,000 for the first time since Feb. 3.
The Nasdaq Composite Index is down 4.7 percent for
the month so far, while the Dow Jones industrial average
is down 2.6 percent and the S&P 500 is down 3 percent.
"You've seen small caps dominate," Jacobsen said, referring
to some of Wall Street's one-time darlings. "We're going to
begin to see large caps dominate now as people shift more from
these high-beta plays to quality."
Despite the selloff, data so far showed that investors are
still pouring money into stocks.
Investors in U.S.-based funds put $8.9 billion into stock
funds in the week ended April 9, the biggest net inflows in four
weeks. At the same time, funds that mostly hold U.S. Treasuries
reported outflows for the first time in four weeks, according to
data from Thomson Reuters' Lipper service on Thursday.
Yet biotechs have been slammed. The Nasdaq biotechnology
index has fallen for the seventh straight week. The
biotech index is down about 21 percent from its record closing
high on Feb. 25. The last time it fell for seven straight weeks
was in the summer of 1998.
The price-to-earnings ratio on the Nasdaq biotech index is
34.4. The forward P/E ratio for the S&P 500 is 14.9, Thomson
Reuters data showed.
Data on sector exchange-traded funds also showed a big move
out of tech-related areas, with science and tech ETFs
registering outflows in the week ended April 9 after at least
five straight weeks of inflows. Healthcare and biotech ETFs also
showed outflows for the latest week, according to Lipper data.
High-growth companies, mostly in the tech and biotech
sectors, led 2013's rally, leaving them with some of the
market's highest valuations.
"Valuations are going to start becoming relevant again, at
least for a while," said Uri Landesman, president of Platinum
Partners in New York.
TUNING IN TO THE FED
Part of what's behind the big momentum selloff may be
nervousness surrounding the Federal Reserve's December decision
to scale back its economic stimulus, or quantitative easing.
That's why all eyes will be on Fed Chair Janet Yellen when
she speaks on Wednesday to the Economic Club of New York.
"We've had basically five years of a market that's been
nannied by the Federal Reserve," which has driven up market
valuations, said Quincy Krosby, market strategist at Prudential
Financial, based in Newark, New Jersey.
"Now as we get closer and closer to the end of QE, I think
traders and hedge funds are being very careful and selective."
(Wall St Week Ahead runs every Friday. Questions or comments
on this column can be emailed to:
(Reporting by Caroline Valetkevitch; Editing by Jan Paschal;
For the U.S. stock market report, click on )