Market Preview: Tough Times for Bears

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NEW YORK (TheStreet) -- It's got to be difficult to be bearish on the stock market these days.

Not because there aren't some valid reasons to be careful with equities at their multi-year highs. The list of potential headwinds has to be pretty familiar by now -- the uncertainty created by the U.S. presidential election and looming fiscal cliff, expectations for ho-hum growth in corporate profits over the next few quarters, the lingering questions about just how Europe gets fixed exactly, China's slowing growth -- but none of it seems very compelling when put against the massive liquidity pledge put forth by the Federal Reserve last week.

Couple the European Central Bank's stated willingness to "do whatever it takes" with Ben Bernanke's vow to keep filling up the punch bowl even after the U.S. economy strengthens and going against the trend on stocks right now seems like pure folly. As Bank of America analyst Ethan Harris said Monday, the Fed announced more than just your average large-scale asset purchase program

"Many commentators are treating the Fed's new policy as just another quantitative easing--QE3," he wrote. "We disagree: we think this is QE3, QE4 and perhaps QE5 combined. We expect more than $2 trillion in asset buying over the next two years."

Now that's a bazooka.

Meantime, Sam Stovall, chief U.S. equity strategist at S&P Capital IQ, observed QE3 puts pressure the U.S. dollar and broke out which sectors are likely to most sensitive to swings in the greenback using historical data dating back over the last three years. He noted value of the dollar fell 1.75% last week and 2.9% since Aug. 31, huge moves in the currency markets.

"Strength in the overall stock market, as well as the three leading sectors, can partly be explained by the decline in the value of the U.S. dollar, in our opinion," he said. "Since 1990, the rolling 36-month correlation between the U.S. Dollar Index and the S&P 500 price index has averaged -0.19, while reaching a peak of +0.37 in August of 1998, in the midst of the Russian debt crisis, and touching a trough of -0.72 in September of last year. Its most current 36-month reading is an elevated -0.69."

In other words, the Fed's easing efforts in the wake of the financial crisis have juiced up the correlation -- when stocks go up, the dollar goes down and vice versa -- significantly.

According to the S&P data, the sectors least impacted by swings in the dollar over the past three years have been included airlines, retail, gold, residential real estate investment trusts and telecom services. Energy, health care and materials have been among the most sensitive.

As for Tuesday's scheduled news, FedEx is the only big name opening its books. The Memphis, Tenn.-based package delivery giant already warned of a shortfall in its first-quarter results on Sept. 4 so the actual report is more about getting some more color on business conditions beyond the press release explanation that "weakness in the global economy constrained revenue growth at FedEx Express more than expected in the earlier guidance."

The average estimate of analysts polled by Thomson Reuters is for earnings of $1.40 a share on revenue of $10.7 billion from FedEx for the three months ended in August. When the company warned on Sept. 4, it forecast a profit of between $1.37 to $1.43 a share for the quarter, down from a prior projection for earnings of $1.45 to $1.60 a share.

FedEx shares took an initial hit after the warning but have since bounced back along with the broad market. As of Monday's close at $89.28, the stock is up nearly 8% so far in 2012 and trading above where it was prior to disclosing the lower outlook. With a forward price-to-earnings multiple of 10.8X, the shares are trading at a discount to the S&P 500's 14.1X multiple as of Friday's close.

The sell side is still pretty bullish on FedEx ahead of the report with 20 of the 28 analysts covering the stock at strong buy (11) or buy (9) and the remainder at hold. The median 12-month price target sits at $103, implying potential upside of more than 15% from current levels.

Tuesday's economic calendar includes the ICSC-Goldman Sachs weekly chain-store sales data at 7:45 a.m. ET; the federal government's current account balance data for the second quarter at 8:30 a.m. ET; the Treasury Department's international capital flow data at 9 a.m. ET; and the National Association of Home Builders's housing market index for September at 10 a.m. ET.

And finally, Monday's after-hours session had a tech-heavy feel to it. The biggest mover was AMD , which was under heavy selling pressure after announcing the abrupt resignation of Thomas Seifret as chief financial officer.

The no. 2 chip maker behind Intel said Seifret, who joined AMD in 2009 and served as interim CEO in 2011, is leaving to pursue other opportunities. The stock was last quoted at $3.60, down 10.2%, on volume of 1.71 million, according to Nasdaq.com.

Meantime, Apple was making waves in late trades after the iconic company saw its shares crest above $700 for the first time ever in extended trades.

The stock ran as high as $701.79 -- a new all-time peak -- after the bell, and last traded at $701.44, up 1.7%, on volume of more than 530,000. The move follows a 1%-plus jump in regular trades after Apple confirmed the iPhone 5 was an unmitigated success, selling more than 2 million units during its first 24 hours of pre-orders.

--Written by Michael Baron in New York.

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