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After The Close - The profit taking, which started yesterday on Wall Street, carried over into today’s session. Our sense is that there was a confluence of factors behind the latest selloff, not the least of which is an overbought stock market following last week’s sharp move higher for equities. The S&P 500 Volatility Index (or VIX) is still trading below 15, a level that would clearly suggest that stocks are overextended right now. In addition, some apprehension ahead of a fourth-quarter reporting season that may fall short of expectations, particularly on the top line, and continued worries that the spending cut and debt-ceiling talks may get contentious over the next few weeks, may have prompted investors to once again modestly reduce their exposure to stocks. Though, like yesterday, the major indexes were able to pare a portion of their earlier losses.

Still, by the closing bell, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index had shed another 55, seven, and five points, respectively, adding to yesterday’s mild setback. As noted, there appears to be some recent hesitation among investors to add to their equity positions. Not surprisingly, there was a mild pickup in demand for fixed-income securities and precious metals, both viewed as safer investments. The yield on the 10-year Treasury note, which moves in the opposite direction to the price, fell a few basis points, to 1.87%, while the price of gold rose nearly 1% in the latest session.

From a sector perspective, there was not much to like today, as nearly all of the major groups toiled in the red for most of the session. The biggest laggards were the telecommunications, industrials, and basic materials stocks. Within the latter space, investors’ eyes are likely to be focused on the aluminum makers, as Dow-30 component Alcoa (AA - Free Alcoa Stock Report) is expected to report its latest quarterly results shortly. That report will officially kick off the fourth-quarter earnings season, which, according to pundits, is not expected to be overwhelmingly positive. This morning, we may have gotten a glimpse of what may be the norm over the next few weeks when video game retailer GameStop (GME) said that comparable-store sales for the fiscal year ending this January will fall between 7% and 9% after holiday global sales declined nearly 5% from the year-earlier period. The investment community will also be closely monitoring each company’s updated 2013 top- and bottom-line guidance.

Meantime, it was another slow day on the U.S. economic front, and other than for data on the trade gap, it will remain that way for the rest of the week. However, the same could not be said for Europe today. On the Continent, we learned that the euro zone’s unemployment rate climbed to record high of 11.8% in November. That dour reading was further compounded by disappointing economic data from Germany. Specifically, the euro zone’s largest economy witnessed a deeper-than-expected 3.4% decline in November exports and manufacturing orders fell 1.8%. Not surprisingly, given these weak economic figures and the initial weakness in the U.S. equity market, the major European bourses finished the latest session in the red following some early strength. - William G. Ferguson

12:30 PM EST - The U.S. stock market got off to a somewhat weak start this morning, headed sharply lower mid-morning, and is now coming off its lows. As we pass the noon hour in New York, the Dow Jones Industrial Average is off 63 points (-0.5%); the S&P 500 Index is lower by seven points (-0.5%); and the NASDAQ  is down 15 points (-0.5 %). Market breadth suggests a slightly bearish tone, as declining stocks are outnumbering advancers by roughly 2 to 1 on both the NYSE and the NASDAQ. Almost all of the market sectors are trading lower, with weakness in the consumer cyclical, capital goods, and technology sectors. The healthcare issues are bucking the downtrend somewhat.

Technically, the S&P 500 Index may be starting to pull back, after staging a large two-day run, followed by a few days of consolidation. The VIX recently registered a reading of just under 14, suggesting that investors may have gotten overly optimistic. Notably, the VIX is trading a bit higher today, as some traders may now be more cautious about the market.

The economic news was light today, and there are no major releases slated for tomorrow. Unfortunately, this leaves traders free to worry about other concerns. While traders were relieved that the nation did not go over the “fiscal cliff”, there are still some challenges remaining. Further, fourth-quarter earnings season is set to begin tonight with Alcoa’s (AA Free Alcoa Stock Report) release. This report, which will soon be followed by others, can set the tone among traders.  There are a few points to note. In the early stages of the recovery, many companies logged profits, based largely on margin improvements brought about by workforce reductions and restructuring initiatives. Now, many companies will be expected to show top-line progress, as well. Given the weakness in Europe, that may be a tall order. Also, more important than the fourth quarter’s figures, will likely be the guidance for 2013, and many companies will be providing forecasts for the first time. This will likely result in some surprises, and will have “Wall Street” analysts scrambling to issue a slew of “upgrades” or “downgrades”. 

There have been a few corporate reports worth mentioning today. Monsanto (MON) stock is rising, after the agricultural chemicals company posted better-than-expected sales and earnings. But, shares of Yum! Brands (YUM) are trading lower after the company announced that sales in China would be lower than forecast.  - Adam Rosner

At the time of this article's writing, the author had a position in Alcoa (AA).

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Stocks to Watch from The Survey Although we are still several hours away from aluminum giant and Dow-30 component Alcoa’s (AAFree Alcoa Stock Report) fourth-quarter financial report, which marks the unofficial start of corporate earnings season, there are a number of stocks that will likely see active trading on earnings-related news today. At the forefront is Monsanto (MON), a developer of seeds and other agricultural products, which has reported better-than-expected November-period results, causing its shares to climb nicely in pre-market trading. Shares of Sears Holdings (SHLD) are also trading modestly higher ahead of the bell, after the retailer gave updated information about how its January quarter has been progressing. The company also said that its CEO, Lou D’Ambrosio, is leaving his post due to a family member’s medical condition. Mr. D’Ambrosio will be replaced by Sears’ Chairman and majority owner, Edward Lampert. On the other hand, shares of GameStop (GME) are plunging in the premarket, after the video game retailer said that comparable-store sales in November and December were down 4.4%. Management also indicated that comps would likely fall between 4% and 7% for the whole of the January term. Finally, Yum! Brands’ (YUM) stock is indicating a notably lower opening this morning, after the restaurant operator said that fourth-quarter same-store sales in China likely fell more than it had previously expected. – Matthew E. Spencer 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell  - Stocks limped to a lower close in New York yesterday, after several interim rally attempts failed. However, the closing losses were modest and the averages ended the initial session of the first full week of the new year well off of their earlier lows. Profit taking following last week's notable runup, and some uneasiness ahead of upcoming and likely contentious negotiations about spending cuts and a debt-ceiling extension were the primary catalysts for the slight pullback. Angst ahead of the pending flood of fourth-quarter earnings reports may also have been a factor. And on that latter score, aluminum giant and Dow-30 component Alcoa (AAFree Alcoa Stock Report) will issue its latest profit statement after the market closes this afternoon.

All told, the Dow Jones Industrial Average fell 51 points yesterday, ending the session at 13,384, while the Standard and Poor's 500 Index and the NASDAQ posted nominal losses of five and three points, respectively. Losers held sway over winners on both the Big Board and the NASDAQ, but the differentials were not material, further attesting to just the slight aggregate setback in the latest trading session.

As to earnings, it should be noted that expectations are low, so it may well be that the majority of companies set to report over the next fortnight will exceed those modest targets. However, it will be critical to closely track revenue performances and upcoming guidance. Our sense is that the earnings news will be better than the tidings at the top line for the majority of companies, with so many reporters influenced by the sluggish pace of economic activity around the country. As to profits, they figure to again be helped by cost cutting and rising productivity. It is harder to boost revenues in such a setting.

Meanwhile, a new day dawns and we are seeing some mixed results overseas. For example, in Asia, both Japan's Nikkei and the Hong Kong's Hang Seng Indexes lost ground overnight. Now, in Europe, the London FTSE 100, the Frankfurt DAX, and the Paris CAC-40 are inching higher. And over on our shores, the futures are in the minus column, but not by much, with the Standard and Poor's 500 Index in the red to the tune of a point and a half, while the NASDAQ futures are now higher by just over a point. All of this would seem to presage a mixed start when the trading day gets under way in less than an hour from now.

As to other indicators, crude oil is up modestly this morning, to above $93 a barrel in New York, while gold also is in the plus column, currently passing hands at $1,652 an ounce.

For the moment, we sense that the focus could be on earnings over the next several sessions, with the aforementioned Alcoa's net report to be followed later in the week by results from banking giant Wells Fargo (WFC). The big flood of earnings and a stepped-up economic calendar will be on the docket for next week. The economic news, by comparison, is sparse in the current five-day stretch. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.