Bay Street week ahead: a good profit may not be good enough

The start of the quarterly earnings season this week could take a sizeable bite out of Toronto stocks if the pack of financial statements, many of whose high expectations are already priced into the market, do not live up to the lofty set of estimates.
Even a near miss by one or two big-name companies could threaten an entire sector's performance and eat away at the market's near 6 percent year-to-date rise.
"If I was CEO of a company, I would not want to be on the wrong side of the fence, because meeting estimates isn't good enough," said Steve Gold, research analyst at Leeward Hedge Funds Inc. "The ax will come down on all stocks that don't exceed estimates."
Gold says any companies that fail to meet estimates should have warned ahead of time that analyst forecasts were too aggressive, if they wanted to avoid a sharp selloff.
If the market's recent easing period is any indication of how the earnings period will play out, then investors may want to brace themselves for some surprisingly weak numbers.
In the week leading up to the quarterly reporting season in January, the Toronto Stock Exchange S&P/TSX composite index rose 1 percent, whereas the market dropped 1.6 percent last week heading into the next earnings period.
Companies scheduled to release quarterly statements next week include nickel bellwether Inco Ltd, Barrick Gold Corp, electronics manufacturer Celestica Inc, Imperial Oil, and retailer Sears Canada.
Several experts say the sentiment over the next few weeks will be dictated largely by forward-looking guidance served alongside the quarterly numbers.
While expectations were high at the start of the year, investors are now starting to look ahead three or four quarters, and they seem a little bit unsettled.
"It's quite likely that companies reporting next week will meet expectations that are already high, but the point is that investors are currently not in a forgiving mood," said Elvis Picardo, chief market strategist at Global Securities Corp.
"Investors are looking forward to whatever guidance these companies are putting out, and any stocks where the guidance isn't as robust as expected are going to get punished."
But some experts are convinced the market will meander through the earnings period, giving it a necessary pause before going on another healthy run.
And if commodity prices perform well, the resource-heavy index will likely be able to shield itself from any serious meltdown, and even act as a main engine for any upward moves.
"We have a disproportionate exposure to commodities, so on days when the market pulls back, more often than not we will pull back less than the US markets," said Peter Chandler, senior vice-president at Canaccord Capital.
"And on days when the market is strong and reasserts itself, chances are we outperform the US market on the upside.