What to look for in earnings

Earnings, earnings, earnings. This week, we will hear from some 150+ S&P 500 companies, so prepare yourself.

Expect to hear the same song. For the most part, earnings will beat the expectations. Analysts will sing about the ongoing recovery — now notching in at 5 years, companies will cite improvements in cost structure as most of the reasons for the better bottom line.

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Traders on the floor of the New York Stock Exchange.

Investors will and should look for improving revenue, or top-line, growth — numbers to really tell the story of what the future looks like.

Read MoreThis pushes S&P toward 2000: Jim Paulsen

Investors should question how much longer companies can "restructure" — code for layoffs and cost reductions. If the economy IS improving, then we should see companies committing to new hires and new investments in capital expenditures (capex) which should translate into a strengthening GDP in the coming quarter and quarters. Investors will also be listening for new opportunities for companies to grow their businesses.

The heat is on. After the market's recent selloff — a selloff that was muted at best in the broader market — investors will be a bit more critical, I think. We realize that as Federal Reserve Chair Janet Yellen pledges to keep interest rates near zero for the foreseeable future to continue to help the economy, this will continue to blur the lines between reality and La-La Land. Investor should be questioning what this REALLY says about the health of the U.S. recovery.

Remember, the Fed suggests that this recovery will go on for two more years — and it may if they continue to feed the beast — while the Congressional Budget Office forecasts an expansion through 2017. 

Read MoreEarnings are beating estimates—but don't be fooled

So far, earnings have been mixed to mediocre at best. But saying that, I have to recognize that almost two-thirds of the companies that have reported have "beaten the estimate." Expect that to continue. No longer should investors expect a "rising tide to lift all boats" — it is becoming a much more stock-specific story. Misses will be punished individually as investors/traders look for indications that any news is company specific, thus not punishing whole sectors at a time.

Profits will have to move legitimately higher to sustain current valuations — otherwise look for the market to test lower once again. I do not believe that the weakness is over yet. I remain in the camp that investors will test again — no matter what the Fed does — because the reality of a slowly improving economy does not dictate some of the prices we are seeing. The recent rout in some of the growth names defines this as the momentum guys realize the complete disconnect between prices and fundamentals. 

Read MoreWhat can keep momentum going: Art Cashin

Yes, the future does look better but so many things have to fall into place. Until investors are reassured that they are falling into place, the broader market will be held in check. The Nasdaq and Russell remain well below their 50-day-moving averages — a clear negative for investor psyche. Until those markets regain a sense of strength, the broader market will remain cautious. Yes, the Dow, S&P and transports are north of their 50-day-moving averages — suggesting that the "safety trade" in on — but the question remains: Are they out of sync with the economy as investors search for equity stability?

Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him atkennypolcari.com. 

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.

Source:

www.cnbc.com

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Dollar slips on Yellen's dovish stance, pound hits four-and-a-half year high

(Reuters) - The U.S. dollar slipped against a basket of currencies on Thursday after Federal Reserve Chair Janet Yellen said low interest rates are needed to support the U.S. economy even though such a policy stand hurts its currency.

Dollar weakness helped propel sterling to its highest against the U.S. currency since late 2009 as investors continued to price in expectations for a Bank of England rate hike in the first quarter of 2015 after strong jobs and wages data on Wednesday.

The greenback also lost ground against the euro and the yen on dwindling trading volume in advance of the Easter holiday. It trimmed earlier losses against those currencies after a stronger-than-expected reading from the Philadelphia Federal Reserve on business activity in the U.S. Mid-Atlantic region.

Sterling's trade-weighted index hit a 5-1/2-year high in the European session, up 1.8 percent on the year before easing in early U.S. trading. <GBP/>

In her second public speech as the head of the U.S. central bank on Wednesday, Yellen stressed the need for accommodative policy, citing the current anemic pace of price growth as more of an economic threat than the risk of rising long-term inflation.

Her dovish remarks overshadowed data suggesting that the U.S. economy was regaining momentum. Thursday's data showed domestic jobless claims held near pre-recession levels. They followed Wednesday's data that indicated U.S. factory output rose solidly in March and the Fed's Beige Book report showed economic activity picked up in recent weeks.

This latest evidence, however, was not robust enough to override Yellen's rhetoric on low interest rates, analysts said.

"The data are not strong enough to push back the dovish stand," said Sebastien Galy, currency strategist at Societe Generale in New York.

The dollar index .DXY dipped 0.1 percent to 79.700 after hitting a session low of 79.581. The greenback dipped 0.1 percent versus the euro at $1.3821 and was little changed against the yen at 102.22 yen.

Sterling was up 0.1 percent at $1.6806, after hitting its highest since late 2009 at $1.6842.

Meanwhile, the Russian rouble improved for a second day against the dollar as violence intensified in East Ukraine even though Ukrainian, Russian and Western diplomats sought to resolve the crisis.

The rouble last traded up 0.9 percent versus the greenback at 35.72 roubles.

THIN LIQUIDITY

Volumes are expected to fade in advance of the Easter holiday. London, which has the biggest share of daily global currency trading, will be shut on Friday and Monday, while U.S. financial markets will be closed on Friday. Markets in Tokyo will be open.

Nevertheless, according to data from Reuters Matching, trading in dollar/yen was well above its one-month average.

Some investors apparently used comments by Bank of Japan Governor Haruhiko Kuroda as an excuse to buy back yen, even though his remarks contained nothing new, Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank, said.

The central bank chief said the BoJ would adjust monetary policy when needed but said nothing to indicate that more easing steps would be forthcoming any time soon.

"There is potential for another leg lower in the correction witnessed since the beginning of the year, in our view. We look to sell rebounds towards the 102.50 yen area, with a move below 101.50 yen triggering a renewed bearish signal for dollar/yen," Morgan Stanley analysts said in a note.

The euro, though, edged 0.1 percent higher against the yen to 141.42 yen and held firm against the dollar with some of its gains linked to demand for an Italian bond from overseas investors, traders said.

Source:

www.reuters.com

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