Tags: Ablin | earnings | stocks | profit

BMO's Ablin: Q4 Earnings Data Will Present First Test for Stocks

By Dan Weil   |   Monday, 06 Jan 2014 07:11 AM

The stock market has been priced for perfection recently, with the Standard & Poor's 500 Index generating a 29.6 percent return for 2013.

So what could set stocks back? Major companies' fourth-quarter earnings will be released in coming weeks, and they could present a threat to the market if they're weak, says Jack Ablin, chief investment officer at BMO Private Bank

"Probably the biggest risk on the radar screen are the markets themselves," he tells CNBC.

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"Come the second or third week in January we start looking at earnings results, and we could see managements with downbeat forecasts. In that environment, where we're at an all-time high in just about everything, I think that's really going to be our first test."

Profit margins have peaked at about 10 percent, and Ablin predicts earnings will increase about 3.5 percent this year.

"The question is are we going to be able to maintain margins?" he notes. They have been buttressed by the low interest-rate environment, Ablin explains.

In addition, "are we going to accelerate profit growth?" he asks.

The consensus "bottoms-up" forecast for 2014 earnings of companies in the S&P 500 calls for an increase of 10.6 percent, according to Barron's. But some experts think that's overly optimistic, saying profits are on course to gain 4 to 5 percent for 2013.

"There could be double-digit profit growth in 2014, but at this point, it looks like a bit of a stretch to get there," Tobias Levkovich, chief U.S. equities strategist at Citigroup, tells Barron's.

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