Market Preview: Feeling the Fear?

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NEW YORK (TheStreet) -- Judging by Wednesday's furious rally in the final hour, Wall Street is still content to trade on Greece's potential exit from the eurozone, as opposed to fearing it.

The surge got its mojo from a rather perfunctory statement from Europe's leaders ahead of their informal dinner meeting. More wishful than weighty, the sentiment boils down to a desire for everything to go right from here on in: Greece quickly forms a new government, decides to stick with the austerity program, stays a part of the single-currency bloc.

No word on eurobonds. No detail on what contingency plans may or may not be being made for a Greek exit. No real substance.

Yet it was enough to bring stocks back for an hour, a day at least. That means there just isn't enough fear out of there yet. Analysts at JPMorgan Chase addressed the subject in a strategy note earlier Wednesday.

Pavan Wadhwa, global rates strategist with the firm, puts a 50% chance on Greece exiting the European Monetary Union within the next two months and he sees "severe negative consequences" should this come to pass, including a continued deposit and capital flight from the country; a drop in access to capital markets for other sovereigns, most notably Spain and Italy; and good old debt contagion as he estimates "the Euro-area's exposure to peripheral countries is about ¿2.5T trillion in total."

Wadhwa expressed surprise that the potential direness of the situation didn't seem to be reflected in the current environment.

"In his Wadhwa view, markets are nowhere near pricing in such risk," the firm wrote in its research note. "He notes he was in NY last week and was surprised by how little the equity markets seemed to be pricing in back then the risk of a Greek exit from the Euro. Since then, of course, equity markets have sold off a little bit and seem to be a bit more focused on the probability that Greece will exit the Euro or that at least there will be significant issues going forward, given the second Greek election."

Now Wednesday at least saw some real volatility and the swings across asset classes were notable. The yield on the 10-year Treasury revisited record lows; the euro hit a 22-month low; oil settled below $90 for the first time in more than six months; gold is close to correction territory; and the U.S. dollar's strength continued.

S&P Capital IQ sees signs that a bottom could be close for stocks but warned that the greenback's continued robustness -- a sign of its growing safe-haven status -- presents a hurdle to dreams of a snap-back.

"We think the stock market is close in both time and price to a bottom, but we think there will be more volatile, sideways trading as stocks hammer out a bullish reversal pattern," wrote Sam Stovall, the firm's chief equity strategist. "Market sentiment is quickly tilting toward the bearish side of the street, and from a contrarian viewpoint. We think this represents a positive for stocks."

Stovall continued: "The U.S. Dollar Index is making a new recovery high today Wednesday and is at its highest level since Sept. 2010. We think this breakout will fail, as the index is extremely overbought, and sentiment is extremely bullish. If the dollar does not turn lower soon, however, it will undo our bullish call for equities."

As for Thursday's scheduled news, Costco Wholesale is slated to report its fiscal third-quarter results before the opening bell, and the average estimate of analysts polled by Thomson Reuters is for earnings of 87 cents a share on revenue of $22.21 billion.

The warehouse retailer is lauded for its efficiency but top-line growth has stalled out and the stock is now roughly flat for 2012. The shares hit a 52-week high of $92.10 on April 2, and though they've pulled back 9.5% since then based on Wednesday's close at $83.31, the forward price-to-earnings ratio is still a relatively pricey 19.1X.

Compare that to 12.1X for Wal-Mart . Even a nearly 15% boost to the dividend payout earlier this month wasn't quite enough to bring out the buyers. Guggenheim Securities kept its neutral rating following the news.

"This growth in the dividend is generally in line with that of the past several years and gives the company a very competitive payout ratio relative to its peers," the firm said on May 9. "That said, we remain concerned about a moderation in near-term comp momentum and would await better entry points in the name, possibly in the $70s."

Guggenheim is generally bullish on the company but it does believe slowing sales growth will take a toll on the valuation.

"Our thesis continues to be that moderating 'core' U.S. comps--to 2-3% from 4-5%--in the face of tougher compares and disinflation will create compelling entry points for longer-term investors," the firm said. "As a reminder, we regard Costco as one of the few (perhaps only) consumables retailers capable of growing earnings at a 10%-plus rate over the next 10-15 years as a substantial international expansion opportunity is taken advantage of."

Check out TheStreet's quote page for Costco for year-to-date share performance, analyst ratings, earnings estimates and much more.

Thursday is a light earnings day featuring Barnes & Noble , Flowers Foods , H.J. Heinz , LJ International , Monro Muffler , Rediff.com , Tiffany & Co. , Toro , Toronto-Dominion Bank , and Verifone Holdings .

The economic calendar brings weekly initial and continuing jobless claims at 8:30 a.m. ET; and durable goods orders for April also at 8:30 a.m. ET. The consensus estimate is for initial claims to dip down to 365,000 from 370,000 last week, while durable goods orders are seen up 0.3%.

Excluding transportation, durable goods orders are projected to rise 1%. Briefing.com's own view is more negative as it sees a 1.5% decline in total durable goods orders, and a flat performance excluding transportation.

And finally, Hewlett-Packard was really the only thing keeping the Dow finishing in positive territory on Wednesday but the blue-chip index gets a headstart on Thursday as the stock was jumping in after-hours action following a strong quarterly report.

Fears that HP would echo the "challenging environment" sentiment of Dell and Cisco with its own quarterly earnings miss proved unfounded as Meg Whitman & Co. were able to hold the line on revenue from the PC business.

The expected news of a major restructuring plan that will reduce the company's workforce by 8%, eliminating 27,000 jobs, was also cheered as Wall Street is on board with the idea that HP needs to make decisive moves to fuel a speedy turnaround. The stock was last quoted at $23.17, up 10%, on extended volume of nearly 9 million, according to Nasdaq.com.

The big loser in late trades was NetApp , whose shares lost more than 16% after the storage and data management technology company forecast non-GAAP earnings of 34 to 39 cents a share in its fiscal first quarter, well below the current consensus view for a profit of 59 cents a share.

--Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

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