Monday, July 9, 2012
The domestic economic calendar is on the thin side this week,
though the second quarter earnings season gets into the spotlight
with
Alcoa's (
AA
)
release later this afternoon. Early signs indicate that the
earnings cycle may have run its course with revenue gains hard to
come by in a slowing global economy and margins already topped
out.
We will know for sure in the coming days as the earnings season
gets into high gear, but the initial reports and pre-announcements
seem to indicate that earnings growth may not be available as a
reliable prop for the market anymore. The softening earnings
picture will likely get added to the market's existing worry list
of Europe, China, and the questionable domestic economic
scene.
With respect to Europe, finance officials are meeting today to
hammer out details of the agreement announced in the last Euro-zone
summit a few days back. The market is getting nervous on lack of
follow-through progress, particularly with respect to the
agreement's banking sector provisions. Moving towards joint banking
supervision is the stated Euro-zone goal, but hardly anyone expects
the path leading there to be without twists and turns. And the
related anxieties have started showing up in the region's
government bond yields, with Spain and Italy's yields inching back
up in the wrong direction.
Europe is not the sole global issue weighing on the equity markets,
the evolving outlook for the Chinese economy is equally if not more
significant. The Chinese prime minister's statement about the
economy over the weekend seems to confirm some of the concerns
raised by last week's surprise rate cut by the central bank, the
second less than a month. The decline in inflationary pressures, as
confirmed by this morning's inflation reading, indicates that the
Chinese central bank could afford to get more aggressive in its
easing efforts.
We will know the extent of Chinese slowdown later this week as
the second quarter GDP report comes out on Friday. The current
consensus expectation of 7.6% growth in the second quarter will be
weakest reading since early 2009. It is perhaps not unreasonable to
see downside risks to Friday's growth number in light of last
week's interest rate cut and the weekend comment from the prime
minister.
On the home front, the market will be keeping a close eye on the
Fed to handicap the odds for further QE following the latest run
of weak economic reports. Minutes of the Fed's June meeting
coming out Wednesday afternoon will be of particular in that
respect. The earnings season will get into high gear from next week
onwards, but results from
Google (
GOOG
) after close on Thursday and
J.P. Morgan (
JPM
)
and
Wells Fargo
(
WFC
) Friday morning will give us some flavor of things to come.
Sheraz Mian
Director of Research
ALCOA INC (AA): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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