Get ready for a tricky earnings season

It may be the worst 3 years, starting with Alcoa, Yum Brands, JPMorgan and Wells Fargo this week. Also watch oil, gold and corn prices.

By Charley Blaine Jul 6, 2012 9:56PM
Charley BlaineThe jobs report on Friday made no one happy because it clearly showed the domestic economy has slowed down.

Now come the earnings reports for the second quarter, and they're likely to test investor patience big time. Europe is starting to hurt results -- just as economists have been warning for months.

If there's any good news to expect over the next few weeks, it will be decent profits from Apple (AAPL) and maybe some stocks related to, dare we say it, housing.

This week features Alcoa (AA), Yum! Brands (YUM) and banking giants JPMorgan Chase (JPM) and Wells Fargo (WFC). The economic reports include Monday's report on consumer credit, the minutes from the June Federal Reserve meeting and the June Producer Price Index report.

The reports will come after a week where the Dow Jones industrials ($INDU) fell 0.8%. The Standard & Poor's 500 Index ($INX) dropped 0.6%, and the Nasdaq Composite Index ($COMPX) managed a small gain.

Article continues below.
The Nasdaq-100 Index ($COMPX) finished 1% higher, thanks to a 19.6% gain for Netflix (NFLX), a 12.5% increase for Green Mountain Coffee Roasters (GMCR) and a 3.8% increase for Apple, which finished the week above $600 for the first time since the end of April.

It was a downer of a jobs report
And, of course, there was the jobs report that suggested payroll employment rose only a seasonally adjusted 80,000 in June, and April and May weren't much better.

Seasonal adjustments smooth out the usual events like the end of a school year when faculty and other staff in schools, colleges and universities leave for the summer. Without them, July would be a month everyone dreaded. But the adjustments for June took a raw gain of 391,000 and turned it into 80,000. (Yes, that means the economy may be a touch better than you hear.)

Still, the report was a downer for investors around the world, and stocks tumbled. The Dow was off 194 points before the usual speculation that the Federal Reserve would step in and buy up billions of dollars of government bonds to stimulate the economy.

Maybe the Fed will. Maybe it won't. But the speculation and bargain-hunting trimmed the Dow's loss to 124 points.

But the worries about the domestic economy and how slowdowns in Europe will affect the domestic economy won't go away over the weekend.

Alcoa and JPMorgan are the key reports, but listen to Wells Fargo
The earnings season begins after Monday's close when aluminum giant Alcoa reports its second-quarter results. What will be more important than the earnings themselves will be the guidance.

The company is expected to report 6 cents a share in earnings, down from 32 cents a year ago. Revenue is seen falling 11.4% from a year ago to $5.83 billion. Aluminum is used in cars, planes, new buildings and the like. The market has been glutted with the supply from China, and prices have fallen.

And the big question is how the widening recession in Europe is affecting Alcoa's results -- if the answer is badly, then the next question is when a rebound may come. The stock fell slightly on the week, but it tumbled 12.7% in the second quarter.

Yum! Brands, the owner of Taco Bell, KFC, Pizza Hut and other chains, is closely watched for what it says about its fast-growing business in China. China is a puzzle because it apparently is suffering through a miserable real-estate bubble, and expectations are that growth will slide substantially. China is 45% of Yum's business.

JPMorgan Chase is going to have a lot to say about that disastrous trade announced in May that may cut quarterly profit by $4 billion, maybe more. The trade was a complex series of buy-and-sell moves involving credit default swaps and other derivatives that went wrong because Europe didn't fall apart this winter.

Analysts see earnings of 79 cents a share for the quarter, compared with $1.27 a share a year ago. The estimates have come down because of the trading debacle. At the end of April analysts were projecting $1.24 a share in earnings.

Wells Fargo is seen delivering good earnings, 81 cents a share, up 16% from a year ago. It's a huge bank and the nation's largest mortgage lender. One in three mortgage loans are now originated through a Wells Fargo office.

It has modified some 772,000 mortgages as of May 31, and so far, the company says, borrowers are paying on time.

There are concerns about the business getting too big. But the company has insisted it has the experience to handle the risk. So far, investors agree; the stock is up 19.9%, compared with JPMorgan's 2% gain.

One other earnings report to watch: Marriott International (MAR). The hotel operator is expected to report 42 cents a share in earnings, up from 37 cents a year ago, with revenue off slightly to $2.8 billion. Marriott has a big international presence, and so far, investors don't seem worried. The guidance and analyst call will confirm whether investors are right.

The stock is up 35% this year but appears to have peaked right around $40.

Markets for the week



7/6/2012

6/29/2012

% chg.

YTD chg.
Dow Industrials

12,772.47

12,880.09

-0.84%

4.54%
S&P 500

1,354.68

1,362.16

-0.55%

7.72%
Nasdaq 

2,937.33

2,935.05

0.08%

12.75%
Russell 2000

807.14

798.49

1.08%

8.94%
Crude oil 

$84.45

$84.96

-0.60%

-14.55%
(per barrel)

0.00

0.00

0.00%

0.00%
U.S. Dollar Index 

83.56

81.75

2.21%

3.77%
10-yr. Treasury

1.54%

1.66%

-6.93%

-17.48%
Gold

$1,578.90

1,604.20

-1.58%

0.77%

Fed minutes are the big economic report
In quantity, it's a light week for economic reports.

But the Fed's minutes from its June 19-20 meeting will be perused carefully for signals on when the Fed might organize a new program of quantitative easing. The divisions within the Fed and its members on whether to make a move at all have been quite strong. The minutes may shed light on how inflexible the opponents are for any more easing.

The most important reports after the Fed meeting include its own report on consumer credit. A gain in nonsecured credit (aka credit cards) would suggest more economic confidence than recent data have indicated.

Also due are reports on oil and natural gas inventories (Wednesday and Thursday, respectively), initial job claims on Thursday and the University of Michigan Consumer Sentiment Index.

Lastly is the Labor Department's Producer Price Index. This should show falling energy prices, but it also shows the first signs of a new round of food inflation from the drought in the Midwest and South.

Outside the United States, a few economic reports could move markets. These would include reports on industrial production in France, Italy and Britain on Tuesday; the Bank of Japan's interest-rate announcement on Wednesday.

The reports with the biggest potential impact on markets: China's reports on gross domestic product and industrial production, both on Thursday.
136Comments
Jul 9, 2012 3:53AM
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Floating- Most Americans don't  have a problem with"legal" immigration. Why should someone illegal stay limiting the right of someone that applied in the proper manner for passge into the US. 

We need a complte shutdown of immigration to the US. The economy currently can not obsorb the number of illegals. By the way,. Why are we taking the poor and uneducated and denying a rocket scientist from Germany entry.

 

So let's see. What  happens to a Salvadorian that is caught crossing the Mexican border? Can you tell me? There is simply not a country in the world dealing with an immigration problem like ours. There is not a country with such a lousy policy as ours. The only country I know of that could qualify is France. A country being destoyed by another bunch of Liberals.

 

Now, You stated.  If Romney picks Rubio, he's for illegal immigration? What a stupid comment..

Marc was the son of exiles. Cuban Americans "forced" off their beloved island after the  thug, Fidel Castro, took power. Does Mexico force it's citizen over the border?

 

Mexico is an Aristocratic Society. I believe they have free elections. See the difference between Rubio and the average border runner. Get your facts straight.....

 

 

Jul 7, 2012 12:47AM
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But the Fed's minutes from its June 19-20 meeting will be perused carefully for signals on when the Fed might organize a new program of quantitative easing.

 

Translation:  The market manipulators are looking for the fed to throw money to them so the ensuing poor earnings season and faltering economy won't look so bad come election time, if only they can just keep propping up the stock market for a few more months. 

 

I mean really, otherwise, someone might have to sell their summer house in the Hamptons to cover their losses...and how embarrassing would that be??

Jul 8, 2012 2:23PM
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Read a story on Bloomberg (bless their tongue in cheek unbiased reporting) that Diamond who resigned from Barclays as a result of the Libor debarcle, while probably won't find a similar position with a public company, will llikely be sought out by private hedge funds and the like due to his extensive expertise and skill set that shouldn't go to waste. Marvellous stuff - imagine if his kids were all serial killers, rapists and drug runners - I suppose Bloomberg would then nominate him for 'Father of the year'.
Jul 8, 2012 11:53AM
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remember the dems are the ones who just walk out of any talks how can anything ever get done, we had a employee that did the same thing anytime her department was challenged and we fired her things got much better after that we were able to discuss, come up with solutions and get on with correcting the problem, nothing will change unless these idiots stay take the heat for there mistakes and work towards a solution

Jul 8, 2012 2:09PM
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Same old garbage - get ready for a crapy earnings season - if we are to believe the past few months as portrayed by these columists and collective media - then there should be absolutely no reaction since everyone knew the news already - but I'd still expect a rough ride since obviously it must be the smaller investors rocking the share prices up and down 2-3 percent every week. So if this comes to pass, then obviously reinforces the belief that both the media and large institutions are in bed and doing whatever they can to screw the last dollar out of every smaller investor as well as economy as they can. But on the flipside, might just see a few of those so called 'surprises' that rallies the market that 'nobody' was expecting - and that would further reinforce the belief that either the medai and market knows absolutely nothing, or that they are indeed in bed together trying to screw us all. Either way, whatever the result, UNLESS the market shows absolutely no reaction will justify most investors beliefs that the market both locally and globally is controlled and the biggest ponzi scheme in history.

 

Jul 8, 2012 10:10AM
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"Our government officials have become a part of the scandals and not a force against them. Congress is bought and paid for by lobbyists, oil companies, drug companies, etc..   The reality is that you can elect any president you want and NOTHING will change until "we the people" figure out a way to clean out "THE HOUSE" and Senate with MIDDLE CLASS REPRESENTATION!"

I understand and agree with your frustration, but... are THEY the problem or is the campaigning and election system the real problem? I think so. I would love to run for Office. I am not willing to sell my life liberty pursuit of happiness and freedom in exchange for puppet money funding. I agree that no lobby should exist or any direct campaign or party funding whatsoever. There should be one way to enter an application to run, one method of base qualification with security check and one format for aligning views and purpose with the public. We are STILL stumping much the same way it has been done for centuries. Also... time to end Law Firms altogether. A lawyer has no business in politics at all, much less a nest of them.
Jul 9, 2012 5:38AM
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The only "tricky" part of earnings season is figuring out whether the "analysts" are deliberately  UNDER-stating estimates (to manipulate a stock's price upward) or deliberately OVER-stating their estimates (to drive a stock's price down).
Jul 7, 2012 1:11AM
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Gosh..I am speechless. What happened to 'The economy is doing fine'...? What happened to "Unemployment is down'...? What happened to 'Stocks are on the rise'...? All these libtard biased news organizations are finally facing the facts. Jobs SUCK...the economy SUCKS. We are 16 TRILLION dollars in debt and it will take us 100 years just to pay off the INTEREST. All this because we have a tin-plated demigod with delusions of grandeur in the White House who blames everyone but himself. Thank you for wasting 4 years  and wasting our hard-earned money, Blowbama. It's time for a PERMANENT vacation. But this time it is not on our dime. It is time for the long walk of shame. Good Riddance, you underqualified speechmaker.......................
Jul 9, 2012 5:56AM
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I miss the good ole days..you know... When Bush was President. It was like Christmas every day *sign*
Jul 8, 2012 9:38AM
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Anyone that thinks that anything of significance is going to change without some fundamental change made to the system is either trying to fool themselves or everyone else.  This country was founded on citizen volunteers doing their time in a government position and then returning home to their REAL job not career politicians.  Until term limits are put in place for congress making the prospects of a lifelong career at the taxpayers expense it's like pi$$ing up a rope.  When term limits are FINALLY put in place the lobbyists impact on these career do nothings will diminish and our elected officials may actually be able to do a respectable job of representing We The People.  And while I'm on the soapbox here, what is this bull$hit of doing one term in congress and getting a pension for life about??  Oh wait, that was put in place by congress, for congress with a total and wanton disregard for We The People.  No surprise there is there sportsfans...
Jul 8, 2012 11:06AM
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We need to elect good manager not politicians and all of Congress needs to go back to a token 50k + set expenses as compensation period, no perks, no gifts, no extras and provide term limits. Also as optional have a special primary extension election to vote to extend after term is over. just in case they are really good managers and if caught doing anything illegal a quick and Public trial, expulsion and restitution if found quilty. The solution for the Bank Mafia an the Corrupt Libor scam.....LET THE SYSTEM GO UNDER AND START FROM SCRATCH. NO DERIVATIVES, NO MIDDLE MEN, NO PYRAMID BANKING, NO INVESTMENT BANKS AND BANK RELATIONSHIPS, NO HEDGING, NO REINSURANCE, OPTIONS, NO SWAPPING, NO OVERSIZE BONUSES AND COMPLETE TRANSPARENCY
Jul 9, 2012 4:22AM
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Hey , Romney will still have job if he loses to Obama. You won't have ajob if Obam wins. He's got us headed into a depression.

Jul 8, 2012 10:33PM
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V_L , my residue of 37 years of labor sets in various financial institutions such as those complex financial instruments you say are toast. I won't live to work long enough to recover from such a loss if it should happen. And I don't wish to be a ward of a burnt out, has been country that flushed a promising future. I take independence seriously. While other folks were borrowing their quality life style, I created my own and put money back. I don't owe those who ridicule me for my conservation anything but my chosen amount of charity. 
Jul 8, 2012 10:43AM
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What is even more distrubing is that 6800 of those so called new jobs are "Life Guards".  When summer is over, how many will remain on the payrolls?   With seasonal jobs removed from the total, it was under 32000...   Trouble ahead?
Jul 8, 2012 11:39AM
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This is pitiful........10 dating sites(spam) on the first page....This is hardly worth coming to; To try and read.

 

See ya....Enjoy your Sunday.

Jul 8, 2012 6:02PM
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The market is in a range that indicates a strong possibility for a breakout to the upside if the Fed. announces another round of easing ahead of the election. The market is so decoupled from the fundimentals and is driven merely by speculation. Just look at the home builders whose stocks should be in the low single digits based on fundimentals. Company profits can no longer be as influenced by cost cutting and layoffs as they were in the past and real revenue factoring out inflation is down pretty much across the board. The hogs are waiting on the side lines for another slopping of the government's same old kick the can QE. And the beat goes on with no end in sight and the same old same old measures that don't work.
Jul 8, 2012 9:40PM
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V_L why don't you and Max get a room already...  too socialist idiots supporting the moron-in-thief...

 

 

Jul 8, 2012 6:13PM
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                           Fat Cat, what incentive do we have to put another Republican in the White House, in 2001 we had a balanced budget with a $237 billion dollar surplus and a 10 year projected $5 trillion dollar surplus that would have eliminated our National debt. Instead we got Republicans in all houses acting like a Monkey humping a football.

First they dropped the fed rate from over 6% to below 2% during the biggest housing boom of all time, flooding the markets with easy cash and exploding a already bad situation. Then they cut taxes for millionaires and reduced our federal revenues by 4.6% and at the same time increased government spending by 5.61%, a 10.21% negative revenue swing yearly. Only increased revenue from the housing boom kept things from spinning out of control, but once the boom was over, it was time to pay the Piper for the $5.07 trillion dollar spending spree. Even though Obama has cut added spending to it's lowest level in 60 years 1.4% annually from 7.7% during Bush, were still paying for the unfunded madness of the Republican years, 2 trillion in war debt, 2 trillion in tax cut debt and added entitlements and new agencies costing hundreds of billions every year, Medicare D, Home Land Security, No Child Left Behind, TSA etc. How can anybody actually trust these football humping Monkey's to fix their own mess. Romney's only plan is to cut Corporate taxes for His Fat Cat buddies and dump the burden on the working classes, were over $2 trillion in the hole from the last tax cut. ( DEET DA DEE )

Jul 8, 2012 7:52AM
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only 80,000 people got work last month, obama couldn't even get the illegals a job. nobama in november, lets remove them all. whoever runs for congress or senate vote for the other person. that will show them that America wants there freedom back that obama is trying to take away. POS

 

Jul 7, 2012 10:36AM
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LOE you continue  to believe government should redistribute the wealth.   You continue to believe that other people should have the pay confiscated via taxes to support the democrat leech class.   You seem to believe that the imbecile "57 States" is smarter than a 2nd grader.  Worse you continue  to believe in his failed attempts to Tax, Borrow, Spend and Debase our way to prosperity, when you know that cannot work.

 

We cannot reinforce failure this November, we must terminate as many Democrats as possible.  If they are unemployeed they cannot do any further damage to America.   We don't want Oblama's Marxist state.

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