The most important item on today's calendar is the release of
the Fed's June meeting minutes later this afternoon, which will
give the market an opportunity to handicap the odds of further Fed
support in the coming days. The uncertain domestic economic scene
following the recent run of soft economic readings has increased
the market's clamor for more QE, and today's minutes will likely
show that the Fed remains willing to oblige should conditions
While most expect the Fed to come through with more QE at some
stage if the economy remains weak, hardly anyone believes that a
new round will materially change the trajectory of economic growth.
What could be far more beneficial to the economy at this stage
would be decisive resolution of the "fiscal cliff" issue, but that
is unlikely to happen in this election year.
As a result, the Fed is the only game in town and they would like
to be seen doing "something" even if its utility is questionable.
The election may prompt the Fed to take earlier action rather than
wait for more evidence of slowdown.
The global economic growth question that had been swirling around
for a while seem to have finally caught on with corporate earnings
as well. The current earnings pre-announcement season has provided
us with plenty of evidence that ongoing synchronized slowdown all
over the world is weighing on corporate earnings. We will know more
in the coming days as the reporting cycle accelerates, but the
signs at this stage don't look very promising.
Bellwether companies in a range of industries like
Procter & Gamble
) have cited worldwide slowdown in demand. Earnings expectations
for the second quarter and full-year 2012 had been trending down
even before these pre-announcements, but we hadn't seen many
downward adjustments to next year's estimates.
It is very likely that we will see a material acceleration in
negative estimate revisions for 2013 as the second quarter
reporting season progresses. This means that the market may have to
contend with negative earnings momentum in addition to all the
other macro questions that have been weighing on it for a while
(This article was originally published as
Ahead of Wall Street - July 11, 2012
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