US stocks could struggle to extend their seven-week winning streak as the quarterly earnings period draws to a close and the market bumps into strong technical resistance.
Many analysts say the market could spend the next few weeks consolidating gains that have lifted the benchmark Standard & Poor’s 500 by 6.6 per cent since the start of the year.
The S&P 500 ended up 0.1 per cent for the week, recovering from a late sell-off on Friday after a Bloomberg report about slow February sales at Wal-Mart triggered a slide in the retailer’s shares. It was the index’s seventh week of gains.
Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.
“I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback,” Zaro said. The S&P 500 could shave 3 to 5 per cent from now to April, he said.
Fourth-quarter earnings have mostly beaten expectations. Year-over-year profit growth for S&P 500 companies is now estimated at 5.6 per cent, up from a 1 January forecast for 2.9 per cent growth, and 70 per cent of com- panies are exceeding analyst profit expectations, above the 62 per cent long-term average.
On Thursday, Wal-Mart, the world’s largest retailer, is due to report results, unofficially closing out the earnings period. Investors will be keen to see its quarterly numbers, especially after the Friday’s news report that rattled investors.
The S&P 500 has gained 4.3 per cent since Alcoa kicked off the earnings season on 8 January.
The approaching 1 March deadline for across-the-board federal budget cuts unless Congress reaches a compromise adds more cause for caution.