Do quarterly results even matter? Investors had been
anticipating a fairly tough set of reports prior to the most recent
earnings season
, but they bid up stocks throughout March anyway. When those
reports rolled in across April and early May, the numbers (and
outlooks) were quite good -- and stocks stumbled badly anyway. It's
as if investors didn't care.
Of course, quarterly results do matter. It's only that
events such as the Greek economic crisis dictated the
market
action this past spring. Now, the European crisis is no longer
boiling rather just simmering, which should enable investors to
focus more squarely upon -- and respond to -- quarterly
reports.
My take: the numbers should be fine.
Analysts have been steadily lowering their second-quarter
forecasts, and the newly-lowered bar will be stepped over once
again by many companies. It's the forward view that should give you
pause. Three months ago, many companies noted that business was
holding up reasonably well, considering the global headwinds in
place. Credit went to a still-solid U.S.
economy
.
This time around, there's much less reason for cheer. As
I recently noted
, an important indicator, the CFNAI, is flashing red. And as we saw
on Friday, July 6, the U.S. economy is creating fewer new jobs than
was the case a few months ago.
Will earnings season be another period of misery? Not
necessarily. U.S. corporations have shown a great deal of
resilience thus far, and may be able to maintain
profit
margins near current record levels. Still, I'll be watching the
companies that report early in earnings season. What they have to
say may set the tone for the rest of the earnings season.
The four on my radar:
1. Alcoa (NYSE:
AA
)
Reports after the market close on Monday, July 9
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Alcoa's quarterly numbers aren't all that important. They will be
tepid -- at best -- which is already reflected in the stock price.
But Alcoa's management delivers a lengthy global commentary on the
company's quarterly conferencecall , and you can glean a great deal
of current economic and industrial trends taking place across the
world.
2. JP Morgan Chase (NYSE:
JPM
)
Friday, July 13
Investors will finally get a clear sense of the depth of the
bank's trading losses due to ill-conceived
hedging
and
derivative
strategies in Europe. If the damage is not as bad as feared,
shares
may move back toward or past $40, where they stood two months ago.
Equally important, JP Morgan will be the first major bank to
discuss current trends in the financial services sector.
This is a tricky sector for investors: Risks abound, but current
valuations are quite low. (As an aside,
Citigroup (NYSE:
C
)
reports second-quarter results after that weekend, on Monday, July
16.)
3. IBM (NYSE:
IBM
)
Wednesday, July 18
This company's report is important for two reasons. First, its
massive global presence will help us understand current trends
taking place in China, Brazil, Europe and elsewhere. Second, IBM
will give a clear read on the current appetite for spending on
information technology (
IT
). The second half of the year often brings a stepped-up pace of IT
spending as chief information officers (CIOs) opt to spend their
allocated funds as part of the year-end "budget flush." Yet these
CIOs have a lot of discretion and sometimes choose to cancel
spending plans, saving budgeted funds for some future date. IBM is
likely to focus on this issue.
4. GE (NYSE:
GE
)
Friday, July 20
Though earnings season will be fully underway by this point,
GE's commentary always has the possibility to move the markets.
With exposure to aviation, health care, finance, infrastructure,
clean energy, security and a few other niches, GE will reset
investor expectations for many of these industries. GE's shares are
near a three-and-a-half year high, which may imply that investors
anticipate a fairly
bullish
quarterly report
and outlook.
Risks to Consider:
There are so many mine fields out there, led by a seemingly
slowing U.S. economy, that the risks are too numerous to mention.
You'll need to keep a close eye on the market and economic
developments throughout this earnings season, as well as the
summer, in order to get a clear idea of how to position yourself
for the rest of the year.
Action to Take -->
Note earnings season is just a snapshot in time, and if the coming
earnings season is downbeat, it doesn't necessarily portend even
tougher times ahead. After all, things looked pretty bleak last
summer but seemed to rebound by the fall and winter. So if we have
any sort of deep sell-off, then it may prove myopic as the next
rebound could still be around the corner, just as was the case in
2010 and again in 2011.
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of AA, C in one or more if its "real money" portfolios.