Today's trading action will reflect the modestly improved
sentiment on Spain following decisions by Euro-zone finance
officials on Monday that are perceived favorable to the country.
There is no substantive change on the ground, but these day-to-day
sentiment swings do have a bearing on the market, and today's trend
is relatively on the favorable side.
The market may also like some aspects of Alcoa's (AA) quarterly
report after the close on Monday and try to project that to the
coming earnings season. It may be premature -- if not altogether
erroneous -- to draw any firm conclusions about the health and
quality of corporate profitability from Alcoa's results, but some
optimism may nevertheless be warranted.
If Alcoa's results are a sign of things to come in the second
quarter reporting season, then we can probably afford to be a
little less anxious. I am not referring to the aluminum giant's
in-line 'adjusted' earnings, but rather to management's positive
outlook for the coming quarters. The company sees aluminum
prices rebounding in the back half of the year, driven by what they
see as supply deficit and demand momentum in the key automotive and
The price of aluminum has been hit hard by concerns about global
growth -- the same force that has been pushing down the prices of
all other commodities. Alcoa and the aluminum space has some unique
attributes that differentiate them from the broader commodity
producing space. But overall, what's good for aluminum is also good
for a number of other industrial commodities. And it is in that
context that Alcoa's results Monday could be considered a modest
positive for the broader basic materials sector.
Earnings expectations have been coming down steadily in recent
weeks (Alcoa met expectations that had come down by 50% in the past
month) for all sectors, including basic materials. It may be
premature to say that perhaps expectations have come down more than
they needed to, as was the case in the first quarter, but Alcoa's
report does improve the odds of that possibility.
We will know more about the quality of this earnings season in the
coming days. But given how far expectations have fallen in the run
up to the reporting season, it will not take much to come out ahead
In corporate news, Advanced Micro Devices (AMD) pre-announced a
lowered outlook, citing difficult conditions in Europe and China.
Negative pre-announcements and weaker guidance have been a
prominent attribute of this earnings season, with a number of major
companies citing Europe and China for their woes. Wolverine
Worldwide (WWW), the apparel and footwear maker, came out with
weaker-than-expected results this morning.
(This article was originally published as Ahead of Wall Street -
July 10, 2012.)
ALCOA INC (AA): Free Stock Analysis Report
ADV MICRO DEV (AMD): Free Stock Analysis Report
WOLVERINE WORLD (WWW): Free Stock Analysis
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