Stocks to Open Lower At Open Heading into Earnings Season

April  6, 2009 – After initially signaling higher openings this morning for the broader markets as the Street continues to recalibrate valuations based on increasing expectations of increasing visibility on an economic recovery, futures tipped into negative territory as focus turns to earnings season which kicks off tomorrow.

The dollar is weakening against the euro this morning at $1.3508 , while the British point is up to $1.4928. Gold is down $16.90 to $880.40, at a 10-week low, driven by recent strength in the stock markets. Rumors of an IMF sales of gold is also adding to its weakness. We think the dip below $900 is a tremendous opportunity to buy into the gold sector, as the performance of gold decouples from stocks, and traders being to focus more on inflationary and dollar fundamentals, which we see as being the longer-term catalyst for higher gold prices.

Oil prices are trading up to $52.95 this morning as traders adjust expectations that the US recession may have hit bottom. Given that oil is basically tracking the equity markets, look for weakness in oil heading into the earnings season if results are generally negative.

On the corporate front,

·         Alternative Energy Sector – Solar – Look for weakness in solar stocks as declining ASPs again take center stage. Cowen’s Rob Stone cut estimates on the solar sector this morning, noting that the key challenge for PV demand remains the project finance market.

·         Banking Sector – should see some pressure this morning with sector getting rated UNDERPERFORM over at Calyon Securities. Sees excessive risk in the sector.

·         Tech Sector – Sun Micro (Nasdaq:SUNW) could see some weakness today as rumors of an IBM (NYSE:IBM) purchase look like they may not materialize.

·         Analysts at Bloomberg expect S&P earnings to rebound 76% in the Q3 this year.

On the economic front, this week we will get the consumer credit report for February (tomorrow); wholesale inventories for February and weekly crude inventories on Wednesday; export/import prices for March, weekly jobless claims and the trade balance for February on Thursday; and the Treasury budget for March on Friday.

In terms of what we expect in today’s session, while the markets look to open higher, we expect stocks to fall into negative territory, as we head into earnings season tomorrow. We still expect the earnings decline, which has lasted for six consecutive quarters on the S&P 500 to get worse before it gets better. We have already had warnings from Microsoft and DuPont. Meanwhile, the banking sector, which will be critical to determining the direction of the markets over the earnings period, are by no means out of the woods. We have been buying the Short Dow 30 (NYSE:DOG) believing that we are much closer to the high end of the trading range on the indices and as a hedge against downside risk.

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