Alan Gayle, senior investment strategist at RidgeWorth Capital Management, says the worst of the troubles in the financial sector may be nearing an end. That doesn't mean stocks are out of the woods. "As far as dealing with the credit issues, we're in the late innings," he says. "What we're still cautious about is the likely spillover into the broader economy."
Like many analysts, including Ben Bernanke, who today turned his attention to economic woes, Gayle points to negative job growth and inflation-adjusted incomes as signs of broad economic weakness that will keep American companies from anything resembling a blowout quarter. "The onus is going to be on the nonfinancials to come through on what I would call 'firm' earnings expectations. If they do, that could set up a much more positive environment for equities. But given the slowdown we've seen, the market will be watching first-quarter earnings very, very closely," he says.
He says stocks have a few things going for them, including low rates, a steeper yield curve, "reasonable" valuations, and decent volatility. But trouble at the household level, including dwindling access to consumer credit and falling home values, could put extra stress on markets broadly.