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Stock valuations riding on stellar earnings performance
Records for Dow industrials, S&P 500 cause many to question valuations

SAN FRANCISCO (MarketWatch) — A lot of money is riding on this earnings season...literally. As stock prices continue to rise into uncharted territory, investors are going to be less forgiving this earnings season after walking off the rough start to the year.

On Thursday, the Dow Jones Industrial Average (DJI:DJIA) closed above 17,000 for the first time and the S&P 500 Index (SNC:SPX) set a new closing high just north of 1,985 to end the Fourth of July-foreshortened week following strong job numbers.

This week, investors will be girding for second-quarter earnings season as Alcoa Inc. (NYSE:AA) reports on Tuesday and Wells Fargo & Co. (NYSE:WFC) releases results on Friday. Earnings reports ramp up considerably the following week with a slew of bank earnings from such Dow components as J.P. Morgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc. (NYSE:GS) , along with other heavy-hitters like Intel Corp. (NASDAQ:INTC) and Google Inc. (NASDAQ:GOOG)

“People are going to expect slightly better results this quarter,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. “If there’s solid data that earnings are good, then the market can justify going higher.”

Second-quarter earnings for the S&P 500 are currently expected to grow by 4.9%, according to John Butters, senior earnings analyst at FactSet. While that’s down from the expected growth of 6.8% when the second quarter began, Butters said in a recent note that analysts have cut their earnings estimates by the lowest amount since the second quarter of 2011, suggesting higher expectations and a reluctance to lower the bar. http://www.marketwatch.com/story/stock-valuations-riding-on-stellar-earnings-performance-2014-07-06