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American Axle profit beats Street

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The company, which makes axles and other driveline components for trucks and larger vehicles, also reaffirmed its forecasts for 2012 sales and margins. Shares were up 2.4 percent in afternoon trading.

"We're seeing signs of strengths in the economy," Chief Financial Officer Michael Simonte said in a telephone interview.

"The automotive industry will continue to outgrow the overall economy in our judgment," he added. "There's a substantial amount of replacement demand for vehicles that are aging well beyond historical levels."

Simonte said the company now sees the high end of its expected range of 13 million to 13.5 million for U.S. 2012 light vehicle sales as the most probable outcome.

American Axle said it was quoting over $1 billion of potential new incremental business from 2013 to 2016, and 90 percent of this expected business would come from non-General Motors Co (GM.N) business.

American Axle has been pushing to diversify its business away from GM, which accounts for more than 70 percent of its sales. For the quarter, non-GM business grew 11 percent to $175 million.

American Axle had previously said its goal is to reduce dependence on GM to 50 percent by 2015.

Analyst Matthew Stover of Guggenheim Securities said the near-term story for American Axle is that the company does not have the European risk that other companies have but has leverage to the new GM truck program in 2013.

American Axle posted gross margins for the fourth quarter of 17.5 percent.

"The quarter's strong margin performance highlights the company's capability to continue growing profitability, in our view," Citigroup analyst Itay Michaeli said in a note.

For the quarter, the company reported adjusted earnings of 47 cents a share, compared with analysts' estimate of 39 cents a share, according to Thomson Global Markets I/B/E/S. Most of the outperformance was due to a low tax rate, analysts said.

Net sales rose 4 percent to $605.6 million.

It reaffirmed it expects 2012 sales in the range of $2.8 billion to $2.9 billion and earnings before interest, taxes, depreciation and amortization in the range of 14 percent to 14.5 percent of sales.

Shares of the Detroit-based company were up 29 cents at $12.62 in afternoon trading on the New York Stock Exchange. The stock has almost doubled since touching a year low in October.

(Additional reporting by Ben Klayman in Detroit; Editing by Hezron Selvi, Maju Samuel and Steve Orlofsky)

Goldman to face mortgage debt class-action lawsuit

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U.S. District Judge Harold Baer in Manhattan certified a class-action lawsuit by investors led by the Public Employees' Retirement System of Mississippi.

These investors claimed they lost money in the GSAMP Trust 2006-S2, a $698 million offering of certificates backed by second-lien home loans made by New Century Financial Corp, a California subprime mortgage specialist that went bankrupt in 2007.

Thursday's decision is a setback for Goldman, which had sought to force investors to bring their cases individually.

Class certification lets investors pool resources, which can cut costs, and can lead to larger recoveries than if investors are forced to sue individually.

Goldman spokesman Michael Duvally declined to comment.

The bank is one of many accused by Congress, regulators and others of having fueled the nation's housing crisis and 2008 financial crisis in part by having misled investors about the quality of mortgage debt they sold.

Goldman in 2010 agreed to pay $550 million to settle U.S. Securities and Exchange Commission fraud charges over a collateralized debt obligation it sold, Abacus 2007-AC1 CDO.

"CREATIVE CUTTING AND PASTING"

The Mississippi fund claimed the GSAMP offering documents were false and misleading, saying Goldman's boilerplate disclosures failed to reveal how New Century had ignored its own underwriting standards and used inflated appraisals.

It blamed Goldman's poor due diligence for the bank's failure to find these problems when it bought New Century's loans and packaged them into securities.

Goldman countered that class-action status was inappropriate given the wide range of certificates offered, the differences among the "highly sophisticated institutional investors" that bought the debt, and even that some investors might have had "storm warnings" about New Century's practices.

Baer rejected the defense, even faulting Goldman's "creative cutting and pasting" of a 200-page deposition to bolster its claim that the Mississippi fund was on notice of problems.

"In light of my finding that the common issues predominate, it does not seem likely questions regarding individual investor knowledge, statutes of limitation or any other issue will become unmanageable," Baer wrote.

David Wales, a partner at Bernstein Litowitz Berger & Grossmann, which was named lead counsel, declined to discuss Baer's ruling, but said the plaintiffs plan to proceed toward a possible October trial.

The case is Public Employees' Retirement System of Mississippi v. Goldman Sachs Group Inc et al, U.S. District Court, Southern District of New York, No. 09-01110.

(Reporting By Jonathan Stempel in New York; Additional reporting by Alison Frankel; Editing by Phil Berlowitz)

Cardinal wins order lifting DEA suspension in Florida

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The DEA ordered suspension because Cardinal knew, or should have known, that the pharmacies were inappropriately filling prescriptions for oxycodone by physicians for illegitimate reasons, the company said.

Cardinal filed a request in federal court in Washington for a temporary restraining order to block the DEA order, saying it unfairly affected all shipments of all controlled substances to about 2,700 pharmacies, hospitals and other customers.

U.S. District Judge Reggie Walton responded quickly in granting Cardinal's request, noting the company had already suspended shipments to the four pharmacies in question, two independent and two CVS outlets.

The DEA suspension order "is unnecessary to address the problem the DEA alleges because the plaintiff is not currently supplying controlled substances to the four pharmacies identified," Walton wrote in a brief order.

Cardinal "has also pledged to terminate sales of controlled substances to any pharmacy or customer that the DEA believes is likely engaging in illegal activity or diversion."

He noted the suspension would have disrupted supplies to thousands of hospitals, pharmacies and healthcare providers.

On a conference call with Wall Street analysts, Cardinal Chief Executive George Barrett said he was "outraged" at the imperial way in which the DEA suspended its license, saying the agency had not contacted the company beforehand or given it the "opportunity to be heard."

He also said the order will not affect its financial forecasts and that, if necessary, the company was prepared to ship medicines from its Mississippi facility.

A spokesman for the U.S. Justice Department, which oversees DEA and represents it in court, declined to comment. A DEA spokesman was not immediately available for comment after normal business hours.

The dispute highlights a growing rift between the DEA and companies that make painkillers, stimulants, tranquilizers and other potentially addictive medicines at a time of increased prescription drug abuse. Florida is one of states most affected by the problem.

Cardinal said the DEA suspended the company's license based on increased shipments made to four pharmacies, but the company said volume alone is not sufficient evidence to assume products are being diverted for recreational use.

The needs of pharmacies are varied, and higher volumes might be appropriate based on factors such as pharmacy size, patient demographics and proximity to acute care centers, the company said.

PREVIOUS SUSPENSION

In 2007, the DEA suspended Cardinal's license to distribute controlled substances from the same Lakeland center and another center, in Auburn, Washington, saying the company failed to maintain effective controls of its distribution to retail pharmacies.

The DEA at the time cited the sale of the painkiller hydrocodone to pharmacies that allegedly dispensed the drug based on improper prescriptions from Internet pharmacy websites.

Barrett said the company has since taken significant steps to rebuild its systems and hire new personnel to oversee the process. He said it already scans for potential misappropriation of the drugs and that a spike in volume is one red flag.

He blamed the DEA for not sharing information that would make it easier to prevent drugs from being diverted and added today's action "does nothing to solve the problem."

Cardinal's shares closed down 0.4 percent at $42.05 in regular trading on the New York Stock Exchange.

The case is Cardinal Health Inc v. Holder, U.S. District Court, District of Columbia, No. 12-185.

(Reporting By Toni Clarke in Boston; Additional reporting by Jeremy Pelofsky in Washington; Editing by Matthew Lewis, Tim Dobbyn editing by Andre Grenon)

Estee Lauder raises ad spending

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This would be the first profit miss in more than a year for the company, whose full-year outlook also fell short of analysts' expectations.

Estee Lauder said on Friday that it expected to earn between 28 cents and 32 cents a share after taking a restructuring charge in the third quarter, while analysts on average were expecting the company to earn 41 cents a share, according to Thomson Global Markets I/B/E/S.

The maker of Bobbi Brown, MAC and Clinique brands of beauty products said it would raise global advertising spending by about $80 million, or 14 cents a share, as it introduces new products during the quarter.

"While some of this step-up was likely already anticipated in guidance, we note significant reinvestment in the second half of the year has led to strong first half sales results in recent years, a trend we expect to continue," said Stifel Nicolaus analyst Mark Astrachan.

Chief Executive Fabrizio Freda said on a conference call that Clinique makeup sales in North America grew 13 percent in the second quarter, confirming that its advertising was able to draw new consumers.

For the full year, New York-based Estee Lauder forecast earnings of $2.16 to $2.23 a share, while analysts were expecting $2.26.

"We recommend that investors buy on any weakness tied to the third-quarter guidance, as investment spending in this quarter should lead to stronger sales and earnings growth in the future," BMO Capital Markets analyst Connie Maneaty wrote in a note to clients.

For the second quarter ended December 31, the company posted a higher profit as strong demand for its makeup and skin-care products lifted sales.

Net income at the company, which competes with L'Oreal SA (OREP.PA) and Avon Products Inc (AVP.N) among others, rose to $396.7 million, or $1.00 a share, from $343.9 million, or 86 cents a share, a year earlier.

Excluding special items, the profit of $1.01 a share was in line with the analysts' average forecast.

Estee Lauder shares were trading down 4 percent at $56.41 Friday morning on the New York Stock Exchange.

(Reporting by Phil Wahba in New York and Nivedita Bhattacharjee in Chicago; Editing by John Wallace, Lisa Von Ahn, Phil Berlowitz)

Walgreen sales hit by exit from Express Scripts

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Walgreen said on Friday that it now expects prescriptions filled in fiscal 2012 to be around the low end of its previous forecast of 97 percent to 99 percent of the prescriptions it filled last year.

Walgreen said January sales at stores open at least a year, or same-store sales, fell 4.6 percent as it lost business following its decision to walk away from Express Scripts after failing to come to terms on a new contract with the pharmacy benefits manager.

Analysts, on average, anticipated that sales would fall only 2.7 percent, according to Thomson Global Markets data.

Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for patients in the Express Scripts network on December 31, 2011. Chains such as CVS Caremark Corp (CVS.N) and Rite Aid Corp (RAD.N) have been advertising to woo customers who used to fill their prescriptions at Walgreen.

CVS, in particular, appears to be "the clear winner" due to the fallout between Walgreen and Express Scripts, said Jefferies & Company analyst Scott Mushkin, who has a "buy" rating on CVS and a "hold" rating on Walgreen.

CVS stands to benefit both in its stores and in its Caremark pharmacy benefits management business, analysts say.

Pharmacy same-store sales fell 7.9 percent in January, Walgreen said. Express Scripts prescriptions accounted for 12.4 percent of Walgreen prescriptions in January 2011.

"While it's no surprise (Express Scripts) had a large impact, underlying trends were also disappointing," said Credit Suisse analyst Edward Kelly.

He said that Walgreen's tone in its statement also suggested that the two parties are not close to reaching a resolution.

Walgreen is moving ahead with relationships with large and small employers, health systems, physician groups and other pharmacy benefits managers.

"With January now behind us, we are moving forward with relationships with large and small employers, health systems, physician groups and other PBMs who value Walgreen's ability to help lower overall healthcare costs," Kermit Crawford, Walgreen's president of pharmacy, health and wellness services and solutions, said in a statement.

With such relationships and once it is past the weak flu season, Walgreen expects the number of comparable prescriptions filled relative to January's result to improve in the coming months, he added.

Walgreen has administered 5.5 million flu shots so far this season, down from 6.3 million at the same time last year.

Shares of Walgreen, which operates 7,830 U.S. drugstores, were down 18 cents to $33.35 in morning trading on the New York Stock Exchange.

(Reporting by Jessica Wohl in Chicago; editing by John Wallace and Mark Porter)

Tyson shares up on profit beat, beef outlook

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The U.S. cattle herd shrank for the fifth straight year in 2011, to a 60-year low, as a devastating drought and record-high feed costs hit production.

The shrinking beef supply has raised costs for buyers like Tyson, the No. 1 U.S. meat processor, and McDonald's Corp (MCD.N). At the same time, slack consumer demand has made it difficult to pass on the full extent of those cost increases, putting pressure on margins.

"Our beef segment is experiencing a rough patch as a result of challenging market fundamentals," said Tyson Chief Executive Donnie Smith on Friday.

He later joked with reporters that "rough patch" was a euphemism for "margin compression."

"Although we are still outperforming industry indexes, if current conditions continue, our beef results will be pressured in our second quarter," Smith added.

Still, Tyson said beef would be profitable for the full fiscal year, due to expectations that beef margins will return to a "normalized range" in the second half.

That forecast was surprising considering that beef industry trends have been worsening, said JP Morgan analyst Ken Goldman. But he also praised Tyson's diversity of business, selling chicken, beef, pork and prepared foods.

"Today's results illustrate why Tyson deserves a premium multiple, in our opinion, to many of its protein peers," Goldman said in a research note.

"When one segment suffers, others can come to the rescue, leading to much smoother and less volatile earnings" than those of other meat companies like Smithfield Foods (SFD.N), Pilgrim's Pride (PPC.N) and Sanderson Farms (SAFM.O).

Beef is Tyson's largest unit, accounting for nearly 42 percent of sales in the latest quarter, followed by chicken with 33 percent of sales.

While beef was the biggest sales contributor, it delivered the lowest operating profit as a percentage of sales among Tyson's four units. Beef operating income was $31 million, or 0.9 percent of first-quarter beef sales. Pork operating income was $165 million, or 11.2 percent of pork sales.

Tyson shares were up 5.2 percent at $19.58 on Friday afternoon on the New York Stock Exchange.

PROFIT BEATS EXPECTATIONS

Tyson also said its chicken segment returned to profitability in the quarter, despite higher feed costs. It also cited strong performance in its prepared foods business.

Tyson reported on Friday that net income fell to $156 million, or 42 cents per share, in its fiscal first quarter, ended December 31, from $298 million, or 78 cents per share, a year earlier.

Analysts on average were expecting 33 cents per share, according to Thomson Global Markets I/B/E/S.

Sales rose 9.4 percent to $8.33 billion, matching analysts' estimates. Sales volume fell 5 percent as the company processed less meat in anticipation of reduced demand.

Average prices rose 14.6 percent due to price increases meant to offset higher commodity costs and increased sales of higher-priced items.

The company stood by its 2012 forecast calling for sales to exceed $34 billion, helped by price increases related to tighter meat supplies and higher raw materials costs. Still, the company expressed caution about its prior earnings forecast, which called for full-year profit in excess of $2 per share.

"We still feel pretty good about coming in around the $2 mark, but we think it would be overly optimistic to say 'in excess of' at this point, because of the headwinds we're facing in beef, not to mention the volatility in the grain markets," Smith said.

Because exports are likely to remain strong, Tyson expects total domestic availability of meat -- including chicken, beef, pork and turkey -- to be down 2 percent to 3 percent from 2011, which it said should support higher prices.

(Reporting By Martinne Geller in New York; Editing by Lisa Von Ahn, John Wallace and Matthew Lewis)

Urban Outfitters rises as Street cheers executive appointment

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"We like the idea of putting executives back in roles in which they were previously successful, and we think this story is lining up well for 2012," Barclays Capital analyst Stacy Pak wrote in a client note.

Analyst Pak, who raised her price target on the stock to $29 from $27, said Marlow will reinvigorate the brand as well as the people who work there.

"(Marlow's appointment) demonstrates that new CEO, Hayne, is taking the right steps to solve recent challenges and return the company to its historical growth rates," Roth Capital Partners analyst Elizabeth Pierce, who kept her "buy" rating on the stock, wrote.

Last month, Urban Outfitters, which operates the Anthropologie, Free People and Terrain stores apart from its namesake chain, said co-founder Richard Hayne would replace Glen Senk as CEO in a surprise move.

The company has been criticized for unattractive merchandise which led to a build-up in inventory and hurt gross margins.

On Thursday, the company announced that Marlow, who had retired in early 2010 after spending nine years as the president of Urban Outfitters brand, would return to lead the brand globally.

Shares of the Philadelphia-based company were trading up about 6 percent at $27.96 on Friday morning. They touched a high of $28.28 earlier In the session.

(Reporting by Ranjita Ganesan; Editing by Joyjeet Das)

Edwards Lifesciences shares off 11 pct after sales disappoint

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The company after the market closed on Thursday reported better-than-expected fourth-quarter earnings but sales were lighter than expected, prompting concerns that the adoption of its transcatheter valves may be slower than previously expected.

U.S. regulators in November approved the company's new Sapien heart valve for patients deemed too sick to have open-heart surgery. Wall Street is expecting it to become a blockbuster product.

European sales were also lower than expected.

"While we remain bullish on the long-term potential of transcatheter aortic valve implants and we expect Edwards Lifesciences to maintain its leadership position in this attractive space, we are downgrading our rating on Edwards Lifesciences to market perform," Wells Fargo analyst Larry Biegelsen wrote in a research note.

He said he took the action because of near-term uncertainty of adoption of the Sapien valve in the United States, poor visibility on Sapien sales outside the United States, and the stock's high valuation.

Analysts also raised concerns about weak European transcatheter valve sales, although it was viewed as a short-term issue.

"We are also inclined to view the European transcatheter heart valve softness as temporary - due primarily to macroeconomic concerns in certain countries and not to lack of underlying demand," Leerink Swann analyst Rick Wise wrote in a note.

Edwards shares were off 11.5 percent to $71.37 in morning trade on the New York Stock Exchange.

(Reporting By Debra Sherman; editing by Mark Porter)

Dow Chemical considers locking in low gas prices

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The move by Dow, the largest U.S. seller of chemicals, could signal growing concern in the nation's industrial sector that low gas prices will not last. Natural gas prices have fallen 50 percent in the last six months as output from vast U.S. shale fields flooded the market.

When asked if Dow is considering a hedging program to lock in low prices, Chief Executive Andrew Liveris said: "Yes."

"We used to do a lot of that in the late 1990s, early part of the last decade, and you can expect us to talk more about that in the future," Liveris said in an interview with Global Markets.

The price Dow pays for ethane, a component of natural gas that is used to make many chemicals, rose as high as 94 cents per gallon in the fourth quarter. Prices have eased 30 cents so far in the first quarter, but executives are clearly worried about volatility.

Every 10-cent drop in the cost of ethane boosts earnings by $200 million, Liveris said.

Analysts have been closely watching Dow and its peers for signs they are locking in low costs. Indications in the natural gas futures and options markets show some players may be staking out positions.

On Friday, the natural gas futures contract was down slightly at $2.48 per million British thermal units (BTUs). Natural gas prices have dropped nearly 50 percent in the past three years.

"Companies are looking at these prices and locking in. Whenever you get near $2 (per million BTUs) you are going to have people locking in for the long term," said Phil Flynn, president of futures brokerage PFGBest Research in Chicago. "I would imagine that we will see a lot of hedging at these prices."

Natural gas prices likely will rise back to $4 to $6 per million BTUs by the end of the decade, Liveris said during a conference call with investors following his company's quarterly earnings report on Thursday.

High prices in the last decade, which peaked above $13 per million BTUs in 2005, made U.S. petrochemical and fertilizer manufacturers less competitive with their global counterparts, denting their market share.

The recent drop in price is largely due to the shale deposits in the United States. As a consequence of booming production, ConocoPhillips (COP.N), Chesapeake Energy Corp (CHK.N) and other producers have said the low prices made production at some U.S. natural gas wells uneconomical.

If Dow is able to lock in natural gas prices near current levels, its would solidify its cost advantage over European rivals, such as BASF (BASFn.DE), many of which use crude oil-derived naphtha, rather than natural gas, to produce chemicals.

Dow is planning to build two chemical plants on the U.S. Gulf Coast and bring them online later this decade to process even more natural gas. Later this year, the company will reopen a chemical plant -- also known as a cracker -- in southern Louisiana, Liveris said.

Despite some forecasts that ample natural gas supplies will keep prices low for at least the next several months, recent trading in the options market indicates many players are staking out positions that give them insurance against a sudden sharp upward move in prices.

"Implied volatility" in the options market has spiked to its highest level in more than two years, moving above 64 percent, or about twice the level for most of 2011.

Traders watch implied volatility to gauge risk and a high number suggests a greater chance gas prices could move sharply.

Implied volatility shot up in December and January as the NYMEX front-month gas futures contract tested and finally broke below a key psychological barrier at $3 per million BTUs on its way to a 10-year low of $2.23, hit just last week.

(Reporting By Ernest Scheyder, Joe Silha, Matt Daily, and Ed McAllister; Editing by Andre Grenon and Steve Orlofsky)

Analysis: Stock-picking makes a comeback as macro tides fade

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After a year in which stocks moved in near-lockstep regardless of individual merit, the herd mentality is crumbling away.

The move away from a frenzied rush in and then back out of the market is a welcome sign for stressed-out fund managers and lay investors alike.

"If I think something looks cheap I'm more prepared to own it because I think that will matter. Before, I would throw up my hands and say, 'So what? If it's perceived as a higher risk asset then it's going to crater with any nasty news out of Europe,'" said Art Steinmetz, chief investment officer at OppenheimerFunds in New York.

The change reaffirms the diversification strategies that underpin trillions of dollars worth of savings meant for college tuition and retirement. When just about everything is moving in the same direction, investors have fewer ways to cushion market swoons.

In 2011, daily activity in individual stocks was less dependent on company reports than on action in European government debt markets, and the equity, currency and commodities markets traded in tandem.

Now that stocks are going their own way, it's been good for so-called active fund managers, those who decide what individual stocks are best to hold rather than follow an index.

In January, about 70 percent of active managers outperformed the S&P 500, compared with just 23 percent in 2011, according to Bank of America/Merrill Lynch data.

"Our traders have had their best month since 2009 because of the fall-off in correlation," said Don Bright, a director and trader at Bright Trading in Chicago. "We're doing a lot of homework on earnings since fundamentals are driving individual stocks again."

BREAKING AWAY

Correlations, a measure of how tight a relationship individual securities or entire markets have with each other, have fallen sharply since the volatile trading days of last summer, according to Marko Kolanovic, head of equity derivatives at JPMorgan Chase & Co.

"We are currently witnessing the largest drop in realized correlation in the recent history of the U.S. stock market," he wrote in a recent note to clients. The rolling 10-day correlation of S&P 500 stocks had reached 80 percent in the fourth quarter of 2011, and fell to around 10 percent in early January, according to the bank.

Rob McIver, co-portfolio manager for the $3.8 billion Jensen Quality Growth fund (JENSX), said he grew increasingly frustrated over the second half of last year as he watched the companies in his portfolio increase earnings and yet suffer with the broad stock market.

McIver finished the year with a loss of 1 percent after dividends, compared with a 2 percent gain for the S&P 500.

One of his holdings was Emerson Electric (EMR.N), which sagged throughout the spring and summer as the euro zone crisis worsened. Strong second-quarter results didn't interrupt the trend.

"Emerson was almost like the canary in the coal mine," he said. The stock lost 18 percent in 2011; it is up more than 12 percent so far this year.

ALL IN VS. ALL OUT

For their part, individual investors aren't yet convinced. Despite a 4.3 percent increase in the S&P 500 in January - the second-best month since the end of 2010 - trading volume is down 15 percent from a year ago.

Volatile, correlated trading amplifies the post-flash crash suspicions of many retail investors who see markets as the playthings of big money with the resources to hire legions of PhDs and use expensive technology to keep up with high-speed trading.

Cliff Downing, 53, a small business owner in Wilburton, Oklahoma and a stock picker since the age of 10, has sold most of his stocks and closed out his brokerage accounts since 2008.

"On top of working in the major markets I used to like the (over-the-counter) Pink Sheets but I don't do any of it anymore. I've liquidated everything and moved things to other places," he said.

Since the financial crisis began to get a grip at the start of 2008, investors have pulled more than $400 billion from U.S. equity funds, and the figure keeps growing, with $7 billion withdrawn so far this year, according to the Investment Company Institute.

"Prior to the financial crisis, it was easy to have the view that you could focus more on the micro and individual companies and be fine," said John Roth, the manager of the $6.5 billion Fidelity Mid-Cap Stock fund (FMCSX) and the $1.8 billion Fidelity New Millennium Fund (FMILX). "But the last four years have shook the system."

For now, those worries have abated, and stockpickers are in a position to thrive if Europe's debt talks proceed and U.S. economic figures continue to improve.

"The market is starting to trade stocks based on underlying fundamentals," said Sudhir Nanda, portfolio manager of the $189 million T. Rowe Price Diversified Small Cap Growth fund (PRDSX).

"Autos and the auto sector were improving all the time last year, but the stocks were getting punished because people were so worried about risk," said Nanda. His fund has positions in auto suppliers TRW Automotive (TRW.N) and Tenneco (TEN.N), which were both hit hard in 2011 on global economic concerns.

So far, 2012 has been better for them. TRW and Tenneco are both up 24 percent after losing 38 percent and 27 percent in 2011.

STILL UNRESOLVED

Some analysts caution that the return to profitable stock-picking could be short-lived.

"The sense of real panic about some kind of meltdown in Europe has abated," said Jonathan Golub, chief U.S. equity strategist at UBS. "But I think at the end of the day that this is going to be another year where the macro is going to matter."

Fund managers looking to distinguish themselves from others now have to contend with this quarter's earnings trends, which show a lot of companies suffering declining revenue and a reduced number of companies beating earnings forecasts.

Derivatives strategists at JPMorgan Chase note that implied correlation - expectations for how tight the relationships between stocks will be in coming months - has only declined modestly.

That suggests investors are still hedging against a flare-up of troubles, likely from Europe.

"The European crisis, which is by no means resolved, is a pot that is at least not boiling at this point. It's a pot that's simmering," said OppenheimerFunds' Steinmetz. "That fear of transmission through the banks was what was keeping risky markets highly correlated. Now we can get back to fundamentals."

(Reporting By David Randall, Edward Krudy and Ryan Vlastelica; Additional reporting by Doris Frankel in Chicago; Editing by Martin Howell)