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By Joseph Hogue, CFA

The best first quarter in 14 years closed Friday as the S&P500 traded basically flat for the week. The index is up over 10.2% since the beginning of the year and almost 30% since lows last October on strengthening U.S. data and a de-escalation of the European debt crisis.

With such a rebound, it is no wonder many have been calling for profit-taking and a slowdown in the markets. I wrote an article in late February detailing possible weakness in upcoming economic data due to the unseasonably warm winter and a breakdown in seasonal adjustments used in models. While the markets have not shown much weakness they have traded relatively sideways over the last few weeks on the lowered expectations for economic growth in China.

Housing data in the United States continued to show positive but moderating improvements last week. Pending home sales were half a percent down over the month before but still around one-year highs while the Case-Shiller Index reached a cyclical low as prices have yet to bounce with the rest of the data. The spring months may continue to disappoint as much of the springtime-bounce in construction and sales data was moved forward throughout the warm winter.

Shares of home improvement retailer, Home Depot (HD), may see some weakness if housing data continues to moderate. At a ten-year high, the $77 billion dollar retailer has seen its share price climb almost non-stop since August of last year and is up 34.1% over the last twelve months. Shares trade at 20.3 times trailing earnings and pay a 2.3% dividend yield.

Personal spending jumped the most since last July as consumers cut back on savings and disposable incomes rose only 0.2% on an annualized basis. Persistently weak income growth and the lowest savings rate since 2009 may set data up for a disappointment over the next couple of months.

Bed, Bath & Beyond (BBBY) has benefitted from the growth in personal spending since the beginning of the year and may be ready for a pullback. The $16 billion retail chain trades for a lofty 17.7 times trailing earnings and reports fourth quarter results on the 9th of April. While consensus is for an 18.8% increase in earnings per share, the stock has come up by more than 19% over the last twelve months.

Investors this week will await the ISM manufacturing report on Monday and non-farm payrolls on Friday. The manufacturing index came down a bit in February, decreasing to 52.4 against 54.1 in January, but is expected to rebound in March. Market consensus is for 53.0 though the risk is for a slightly less positive number to weigh on equities.

While expectations are for a moderation in payroll growth to around 210,000 the overall trend and absolute number is positive and will signal a strengthening job market. Initial jobless claims have dropped in five of the last six months and are well below the important 400,000 mark for an improving labor market. Though the markets are expecting a weaker number, the risk is to an upside surprise as the survey week initial claims on March 22nd came in better than expected and stronger than the previous month's report. Markets in the United States will be closed on Friday so any surprise may be tempered somewhat when investors come back on Monday.

Monsanto (MON) will report before market open on Wednesday and is expected to post a gain of $2.12 per share. The consensus would represent an increase of 13.4% over the same period last year on a strong agricultural sector. The share trade for about 25.4 times trailing estimates and pay a 1.5% dividend yield. The shares have come up 9.7% over the last year though they have traded flat since mid-January and have not been significantly above their current price since before the recession. Even if earnings are in line with expectations, the company should report a fairly positive outlook that may help to drive shares.

Constellation Brands (STZ) will report fourth quarter earnings before market open on Thursday and is expected to show $0.38 per share, basically flat over the same period last year. The U.S.-based maker of alcoholic beverages has returned 15.1% over the last year, most of it since the beginning of 2012. Shares trade at about 8.9 times trailing earnings, below the industry average of 11.3 times earnings. Revenue growth has fallen continuously since 2007 and investors may prefer competitor shares that offer dividend yield in addition to price appreciation.

Alcoa (AA) kicks off the first quarter earnings season on the 10th and is not expected to show a positive increase in earnings per share. Stronger economic growth in the United States may help the company surprise when it reports despite stagnant growth in Europe and a relatively weaker environment in China. Auto sales, aerospace, and construction have all been relatively strong over the quarter partially due to warmer winter temps.

Even if markets do pull back somewhat in April, it may represent a strong buying opportunity as the United States looks set to enjoy an economic rebound this year and China should continue its upward momentum. Investors in commodities and emerging markets may get a short-term boost from further stimulus measures in China which could be released sometime in the first two months of the quarter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 2 Stocks For Positive Earnings Surprises, And 3 With Warning Signs