LARGE blue chips, including some consumer-oriented companies, will have to show they can counter sluggish developed economies by leveraging growth in emerging markets and technology – if Wall Street is to maintain earnings momentum this week.
Companies like Microsoft, PepsiCo, and Coca-Cola, unloved on Wall Street, could turn out to be good buys if they can show they justify higher valuations than investors are now willing to give them.
“If you see these Cokes and Pepsis and these kinds of multinational consumer names post good results, I think it is going to give the perception that the equity market can overcome a lot of these domestic issues,” said Nick Kalivas, an analyst at MF Global in Chicago.
Before the recession, the consumer and financial sectors benefited from huge credit expansion. Not so now.
Growth is now concentrated in industrial, materials and energy stocks that benefit from strong demand in emerging markets, as well as a technology sector boosted by robust demand from businesses.
Average earnings growth across those sectors amounts to almost 33 per cent in the first quarter over a year ago, according to Thomson Reuters data. That is more than double the estimated growth for the S&P 500 and towers over the 5 per cent growth in a financial sector burdened by a weak housing market.
Investors will also want to see at least stable performance in developed markets as they gear up this week for a press conference by US Federal Reserve Chairman Ben Bernanke.