The second quarter of 2012 has a lot to live up to but investors can take some solace in the fact that it's got history on its side.


NEW YORK (TheStreet) -- The second quarter of 2012 has a lot to live up to but investors can take some solace in the fact that it's got history on its side.

Research firm Birinyi Associates noted earlier this week that the S&P 500, which finished the first quarter up 12%, usually books a respectable gain in the quarter following 10%-plus rise in the previous three-month period. According to Birinyi, the index has tacked on an average of 5.2% in the quarter following a 10%-plus gain and finished positive 88% of the time since 1962.

If said 10%-plus gain comes in the first quarter, the S&P 500 has averaged a 3.4% advance and been up 86% of the time.

"We are frequently asked what is 'going to be different,' or for 'themes' in the next month, quarter, year etc.," Birinyi said. "Our response has always been that the market pays no attention to the calendar, rather moves in cycles. With that being said, we expect more of the same as we start the second quarter."

Michael Gayed, chief investment strategist at Pension Partners, also feels bullish about the coming quarter. He cites narrowing credit spreads as evidence of tremendous market resilience despite Greece effectively defaulting, slow growth in Europe, and fears over a China slowdown.

"Financials continue to lead markets higher, indicative of growing investor confidence that the financial crisis worldwide is nearing its end," says Gayed.

The most important thing to pay attention to going into the next quarter is fund flows, to see if the "Spring Switch" out of risk-free assets into riskier assets occurs, says Gayed.

Ken Shreve, a RealMoney contributor and financial markets commentator, says that after the big run-up for the market, he's been playing more defensively than offensively. While he's not looking to add new names to his model growth portfolio, he's also willing to let what he owns right now continue working.

"Until I start to see meaningful signs of institutional selling in some of the big leaders -- a name like Apple(:AAPL) for instance -- I'm in no rush to head for the sidelines."

Right now, Shreve is getting mixed signals on underlying market health. Heading into Friday, the broad-based New York Stock Exchange Composite Index showed seven higher-volume declines in recent weeks, which points toward at least some institutional selling, he says. There have been five events of higher-volume selling in the S&P 500 and four in the Nasdaq, he says.

"There is still a bid underneath this market as under-invested fund managers continue to put money to work," Shreve explains.

If the major averages do eventually start to pull back, Shreve is not expecting the selling to be long and drawn out. At this point, a pullback of 5% to 7% from recent highs seems reasonable, according to Shreve.

Next week, he will be heavily focused on the March jobs report from the Labor Department scheduled for Friday. Investors will be hoping for four straight months of 200,000 plus jobs growth. The current consensus view, according to Briefing.com, is for nonfarm payrolls to come in at 215,000.

As for earnings, Shreve says he'll be listening closely to what Bed Bath & Beyond(:BBY) has to say when it reports its quarterly results on Thursday. The company has established itself as one of the best-run retailers out there with a solid track record of growth.

Pricesmart(: PSMT ) is also on Shreve's watch list. Often referred to as the "Costco(: COST ) of Latin America," the company has shown very good top-line growth in recent quarters.

"The chart looks OK, but the issue I have with the stock is that I'm seeing more signs of distribution --institutional selling -- than accumulation or institutional buying," he explains.

Initial public offerings he'll be watching out for next week following a hot week of debuts towards the end of March include Enerkem (: NRKM ) and Erikson Air-Crane (: EAC ). Enerkem, a developmental stage company that converts municipal waste into renewable biofuels and chemicals, is expected to price between $17 and $19.

Erikson Air-Crane, which makes heavy-lift helicopters for government and commercial use, is expected to price between $13 and $15.

With the stock market posting its strongest first quarter in more than a decade Friday, Adam Sarhan, chief executive of Sarhan Capital, sees more gains to come, saying "strength begets strength."

"Most people 'missed' this rally and that is a net positive for future price gains," says Sarhan. He'll get concerned when investors get over-confident about the market going higher.

"Instead, I'm hearing most people say they either missed this rally or are long, but not long enough," he says.

Overall, leadership or leading stocks have expanded nicely over the past few months, which bodes well for the bulls, Sarhan asserts. Several key sectors have participated in this rally, not just one or two random groups, he points out. That housing and financial stocks have been participating in a big way is a good sign for both the major averages and the broader economy, he adds.

Since the March 2009 bottom, the two primary concerns that have caused temporary, albeit violent, pullbacks in the stock market have been European Union debt woes and global growth woes -- either a double-dip recession or a global economic slowdown. At this point, both of these concerns have been allayed or at the very least minimized in the near-term, Sarhan says.

Other upcoming U.S. economic events for next week include March manufacturing data from the Institute for Supply Management on Monday, which is expected to show a reading of 53 for March after coming in at 52.4 the prior month.

February factory orders from the Department of Commerce and the Mar. 13 minutes from the Federal Open Market Committee arrive on Tuesday. February factory orders likely rose 1.5% after falling 1% in January.

Wednesday presents the Automatic Data Processing employment change report for March, a precursor to the aforementioned Friday's nonfarm payrolls data for March. The ADP figure is seen showing a fall to 200,000 from 216,000 the previous month.

On the docket for Thursday is the Challenger, Gray & Christmas job cuts report for March and the usual weekly initial jobless claims from the Labor Department. Initial claims are expected to come in at 355,000.

-- Written by Andrea Tse in New York.



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