Unleash the fury, earnings season is upon us. Companies will now open the envelope and we’ll see who the winners and losers are. This week marks the first big one for 2nd quarter earnings releases, nearly 13% of the SPX 500 will jump into the confessional. What I’ll be looking at of course is the reaction of the market to the earnings, which so far has not been impressive.
Given the economic slowdown, Euro crisis and China slowing it’s no surprise the few names we’ve seen like Cummins, Research in Motion, Alcoa and a few others are talking caution going forward. We can look no further than the jobs data to see the lack of enthusiasm. At this stage of the cycle and with the heavy accommodation there should be more growth that what we have seen, but political reasons could be responsible.
With the big schedule of earnings let’s take a look to see who could have an impact on markets in the week ahead. For technology it’s a big week which has Yahoo, Intel, Google, Microsoft, IBM, eBay and Qualcomm among many others. The jury is out on the tech names due to many factors including the stronger dollar (which effects the big multinationals), softer demand in the US and a weak Europe.
Bank of America and Citigroup will try and extend Friday’s gains after Wells and JP Morgan gave a collective ‘whew’ and barely beat estimates. American Express, Morgan Stanley and Capital One and Goldman Sachs will show us how their financial outlook is for the second half. Thursday is the heaviest day of activity.
Speaking of heavy, General Electric on Friday will give us a view how industrials are faring while some big energy names like Schlumberger will give us their outlook on oil and gas. Freeport McMoran is out Thursday – a key on resource stocks. Mosaic, from the fertilizer group will also tell us how the second half looks.
The VIX has come down hard in recent weeks and for good reason – the fear of the unknown is being left behind. The markets hate uncertainty and when the pile up of unknowns occurred (Greece, Spanish banks, the Fed and China) it fed into a risk-off mode and reaching for protection.
Once the answers or conclusions were seen players were allowed to reach out for risk. The market is still in a precarious position and with complacency at high levels it is prudent to walk carefully. What is the VIX telling us? Either the market has priced in poor earnings and will rise on any news or it is far too optimistic and that could be problematic.
Category: Market Commentary