Public companies, firms that have their shares trade on an exchange, must make their financial reports available for investors to research every quarter, or four times a year. In an earnings report, a firm must supply revenue, expenses, net income, earnings per share, and all of the details in an income statement, cash flow, and balance sheet. Usually the months following the quarter-end are busiest, as this is when most companies will report their earnings.

In a consumer-driven economy, what retailers say about their businesses is very important. For the most part, the retail sector has been saying that business conditions are getting better. A lot of retail stocks performed very well up until the recent stock market correction and valuations are reasonable. I’ve been writing about an underlying strength in the stock market and the U.S. economy and you can see it right now in the retail sector.

The strong first-quarter financial results of Wal-Mart Stores, Inc. (NYSE/WMT) beat consensus and the company expects strong profit growth in the current quarter. A lot of other brand-name companies in the retail sector reported very good numbers for the first quarter and many retail stocks are trading close to record highs on the stock market. Right now, with all the available news and lower oil prices, I’d say that second-quarter earnings season is shaping up to be surprisingly strong.

So, we have a stock market that’s in correction; however, economic news is showing mixed, but generally improving data. Lower oil prices stimulate consumers to spend and they lower the cost of doing business in the industrial sector. While speculators might bet that lower oil prices are a put option on the global economy, the spot price action directly affects the retail sector and that’s good for the economy.

As I keep saying, if we didn’t have the sovereign debt crisis in Europe, I believe the stock market would be a lot higher than it is currently. Corporate earnings growth may not be robust, but it isn’t flat either. The retail sector has been and should continue to be strong through to the end of this year. (See Wall Street Beats Main Street Again.) As well, a lot of industrial companies are expecting a solid bottom half to 2012. And the outlook for the consumer goods sector is also strong, with companies like Colgate-Palmolive Company (NYSE/CL) and Kimberly-Clark Corporation (NYSE/KMB) trading at all-time record price highs on the stock market.

The structural problems in the U.S. economy and the eurozone are almost entirely related to sovereign debt. This is a fundamental problem that needs to be addressed by policymakers. But consumers are doing their part and, as stock market investors, we can see this in the numbers. I fully expect the retail sector to keep outperforming over the coming quarters and the strength in this industry should trickle down to other sectors for a better-than-expected second-quarter earnings season. That’s my current view right now.

This is the correction we’ve been expecting and it’s affecting stocks as well as commodities. The stock market has been due for a correction after a solid first-quarter earnings season and, because share prices moved so strongly since the beginning of the year. It doesn’t really matter what the catalyst is for the correction; it is well-deserved and a healthy development in my view.

I think the S&P 500 Index is vulnerable now to the 1,300 level and, if it gets there, this would be a meaningful correction and a good buying opportunity for higher dividend paying, large-cap companies. Generally speaking, I think we’re in a time now where the stock market will be more apt to reward income over growth. Large-cap, dividend paying stocks have been leading the stock market since last October and I think this trend will continue right into 2013.

Along with large-cap stocks, both smaller companies and commodities are also experiencing a pullback. Growth concerns in the global economy are real and whether it’s related to price inflation in China or sovereign debt problems in Europe, the new normal is slower economic growth rates, especially among mature economies.

I don’t see any reason why the U.S. stock market can’t reaccelerate this year, especially as we are likely to see sporadic improvement in the economic news. And, while the outlook for corporate earnings isn’t robust, it’s still solid and stock market valuations are reasonable. Investment risk remains high for all equities, but it’s been like this since the financial crisis.

I think that big corporations are keeping earnings expectations purposefully low, in order to outperform come earnings season. (See Earnings Reflect Expectations—the Stock Market Is Fairly Valued.) It’s a way of providing shareholders with “good news” in a slow growth environment. One thing we are getting though is increased dividends and this is great news if you like dividends income with the potential for capital gains. Intel Corporation (NASDAQ/INTC) was the latest brand-name company to up its dividends payment to shareholders and, with so much cash building up on corporate balance sheets, increasing dividends news should continue throughout the year.

As I’ve said, this stock market correction is healthy and well-deserved. The stock market is fairly valued and this gives us a lot of breathing room for a pullback. If I were an equity investor looking for new positions this year, I’d wait until the correction plays itself out and I’d be watching my favorite dividend paying stocks for a good entry point. I still like gold investments for speculators; but, to me, dividends are king in this kind of market.

I’d like to see a stock market correction so income investors could buy good dividend paying stocks at fair prices. I’m not rooting for disaster, of course, and I’m not fond of short selling. I just think that, if the stock market pulled back a normal three percent to five percent from its current level, it would make for a very good entry point for new positions.

Although the stock market has done very well since the beginning of the year, dividend yields have stayed about the same. This is due to dividends increases and, as expected, the news for income investors has been good and widespread among a number of industries. Corporations would still prefer to return excess cash in the form of dividends or share buybacks than invest in new plant, equipment and employees. It’s an easy strategy in an uncertain world and, at the end of the day, it keeps shareholders happy.

I expect more increased dividends announcements in the second quarter this year. I knew we were going to get lots of this in the first quarter (see Expect Big Increases to Dividends Over The Next Few Quarters), but when the second quarter ends, company managements have a good sense as to how the rest of the year is going to go. Increased dividends announcements during the first quarter resulted in solid institutional buying. Dividends news was actually an event-driven trade, which is quite remarkable. It would seem that, in the age of austerity, dividends paying blue-chips are once again all the rage. It’s pretty clear to me that, as a group, higher dividends paying large-cap companies will continue to be stock market leaders going into 2013.

The stock market is slowly breaking down at this time, but this isn’t really a worry. We just came off a very good first-quarter earnings season with decent visibility for the rest of the year. The best thing the stock market has going for itself now is its reasonable valuation. Fairly priced stocks can withstand a good degree of bad news. I’m not expecting any major surprises in upcoming economic news, but I do expect the second quarter to be slower than the first. We can already see this in retail spending data.

If a meaningful stock market correction were to occur, then it would be an attractive buying opportunity for new positions. Giving the uncertainty in the world, you really can’t expect much going into 2013. From my perspective, if the stock market were to finish the year where it’s at right now, then it would be a decent year for equity investors. I think this is a market where investors should focus on the leaders—those large-cap companies that have done well this year and pay higher rates of dividends to shareholders. Right now, a blue-chip company’s dividends payment is really the only reliable source of income an investor can find.

If the S&P 500 Index is trading close to the 1,400 level, then I view the equity market as being in good shape. We’re getting a bit of a consolidation now and this is completely normal after the flurry of corporate earnings from large-cap companies. Many smaller companies are only now beginning to report their earnings reports, but this is an equity market that’s focused on large-caps. They have been and I believe will continue to be the outperformers this year. (See Benchmark Stocks Reporting Great Earnings—But the Stock Market Bet on this Already.)

Institutional investors are waiting for a new catalyst to invest in this stock market; without one, the equity market will drift. There is a normal lull in share prices after an earnings season and it’s because the corporate news is over and share prices rose in anticipation of the numbers. Why buy a stock after it reports numbers the Street was looking for? I still believe that investors don’t have to be in any rush to consider new positions in the current environment. If we got a major correction in the equity market, then I’d say add to existing positions. Overall, though, I expect the stock market to become very vulnerable around the time of the U.S. election and going into next year. I could be wrong on this, but I don’t see economic growth accelerating much more than its current rate.

The U.S. economy and the stock market can move forward just fine in a slower growth environment. We just don’t want to see contraction in gross domestic product (GDP) and that’s why the Federal Reserve is doing everything it can (rightly or wrongly) to try to reinflate the economy. The equity market can handle declining rates of growth, but it can’t handle actual contraction in GDP. Because the stock market is fairly valued, this gives stocks a lot of leverage to handle bad news. I think the economy is moving in the right direction, but, just like in industry, it’s doing so in a choppy, uneven fashion.

I would say that the recent batch of economic news is signaling a slowing down in economic activity from the first quarter. The stock market is actually digesting this news quite well and buyers are coming back to the equity market even after disappointing news. But what the current economic news supports in my view are declining expectations for the future—in GDP and corporate earnings and for the stock market. Accordingly, I wouldn’t be surprised if Street analysts were to revise earnings outlooks lower for the bottom half of the year.

I have a strong sense that the stock market trading action we’ve experienced over the last several months will continue over the next quarter or so. One day, the stock market will be up on some positive economic news; the next day, the economic news will point the other way. The stock market is at its current level largely due to two equal factors—the Federal Reserve and reasonable valuations. At the beginning of the year, the U.S. central bank said just what institutional investors wanted to hear—it will support the economy further if necessary. This lit the fire of equity market buyers and, because current corporate earnings support current valuations, the market has held up well.

The trading action since the March 2009 low set during the financial crisis has been remarkably repeating itself quite succinctly. When economic news showed improvement, the stock market accelerated briskly and after a while the trend experienced a meaningful correction. After several months of correction, another decent piece of economic news sparked another upward leg. Just pull up a four-year stock chart on the S&P 500 Index and you can see the consistency in the trading action.

Extending this consistency to the near future, it would seem that we’re on the final leg of a stock market that’s ready to top out and experience another correction. According to the chart, the length of the upward price trends since March 2009 is getting shorter and this leads me to believe that the stock market is setting itself up for a big top, not just another correction. This, of course, is a gut-feel type of analysis. Nobody can predict the future.

The inconsistency in the marketplace is the economic news itself, which continues to highlight uneven recovery in the U.S. economy. The inability of important economic news like orders for durable goods or consumer spending to show a consistent trend is in itself telling. Economic recovery in the U.S. economy is still very fragile and, as a stock market investor, it makes it very difficult to bet on. (See How Are You Going to Earn in the Age of Austerity?)

There remains an underlying strength to the stock market today. Investor sentiment isn’t robust, but it isn’t in the doldrums either. With first-quarter earnings season mostly over for large-cap companies, inconsistent economic news is going to produce inconsistent trading action in the equity market. The economic news isn’t all that bad; it’s just not showing any lasting robustness. It seems to me that the near-term trend is that there isn’t one.

We’re in a stock market now that is completely event-driven. Stocks are fairly valued and earnings expectations are modest. Betting on an underlying theme like low interest rates or recovery in the housing market seems irresponsible, because the Federal Reserve has pretty much done all it can. Prospects for the U.S. economy therefore lie entirely with the individual.