Week Ahead: Earnings Season Begins -- Stocks Will Be Tested
Alcoa Kicks off Earnings, Fed Minutes on Tap
by Ian Harvey
July 09, 2012
After grim jobs data sparked a selloff Friday on Wall Street, investors will look toward the Federal Open Market Committee’s release of minutes from last month’s meeting as well as consumer and inflation data for a better start to the week ahead.
Now come the earnings reports for the second quarter, and they're likely to test investor patience. Europe is starting to hurt results -- just as economists have been warning for months.
Alcoa (AA) kicks off earnings season late Monday with numbers that will set the tone for earnings season.
It is important to bear in mind that analysts have been marking down not only earnings estimates but revenue estimates, and the reason is because of weakness in Europe, which is spilling over to weakness in global operations for many companies.
If there's any good news to expect over the next few weeks, it will be decent profits from Apple (AAPL) and maybe some stocks related to housing.
Earnings in the Week Ahead
This week features Alcoa (AA), Yum! Brands (YUM) and banking giants JPMorgan Chase (JPM) and Wells Fargo (WFC).
Economy in the Week Ahead
The economic reports include Monday's report on consumer credit, the minutes from the June Federal Reserve meeting and the June Producer Price Index report.
Here is a brief list of some of the key events in the week ahead.
All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
Earnings: Alcoa (AA), Yum! Brands (YUM)
• Alcoa (AA) begins the earnings season after Monday's close when the aluminum giant reports its second-quarter results. More important than the earnings themselves will be the future guidance and expectations of other earnings presented.
The company is expected to report 6 cents a share in earnings, down from 32 cents a year ago. Revenue is seen falling 11.4% from a year ago to $5.83 billion. Aluminum is used in cars, planes, new buildings and the like. The market has been glutted with the supply from China, and prices have fallen.
And the big question is how the widening recession in Europe is affecting Alcoa's results - Alcoa surprised Wall Street last quarter with a positive outlook, but the global slowdown could make it harder for the aluminum maker to keep its bullish stance - if the answer is badly, and then the next question is when a rebound may come. The stock fell slightly last week, but it tumbled 12.7% in the second quarter.
• Yum! Brands (YUM), the owner of Taco Bell, KFC, Pizza Hut and other chains, is closely watched for what it says about its fast-growing business in China. China is a puzzle because it apparently is suffering through a miserable real-estate bubble, and expectations are that growth will slide substantially. China is 45% of Yum's business.
• 1.00 am Chicago Fed President Charles Evans on policy in Thailand
• 11.55 am San Francisco Fed President John Williams on economy
• 3.00 pm Consumer credit
Earnings: Shaw (SHAW)
• 6.05 am St. Louis Fed President James Bullard on euro zone
• 7.30 am NFIB small business survey
• 10.00 am JOLTS job openings
• 1.30 pm $32 billion 3-year note auction
Earnings: Burberry, Chevron (interim), Marriott (MAR), Texas Industries (TXI)
• Marriott International (MAR) needs to be watched for guidance. The hotel operator is expected to report 42 cents a share in earnings, up from 37 cents a year ago, with revenue off slightly to $2.8 billion. Marriott has a big international presence, and so far, investors don't seem worried. The guidance and analyst call will confirm whether investors are right.
The stock is up 35% this year but appears to have peaked right around $40.
• 7.00 am Mortgage applications
• 8.30 am Trade balance
• 10.00 am Wholesale trade
• 1.00 pm $21 billion 10-year note auction
• 2.00 pm FOMC minutes
Earnings: Fastenal (FAST), Commerce Bancshares (CBSH), Progressive (PGR)
• Car insurer Progressive (PGR) is expected to report a near-29% decline in second-quarter profit.
• 8.30 am Jobless claims
• 8.30 am Import prices
• 1.00 pm $13 billion 30-year bond auction
• 2.00 pm Federal budget
• 3.40 pm San Francisco Fed’s Williams on lending
• 10.00 pm China GDP
Earnings: JPMorgan Chase (JPM), Wells Fargo (WFC)
• JPMorgan Chase (JPM) is going to have a lot to say about that disastrous trade announced in May that may cut quarterly profit by $4 billion, maybe more. The trade was a complex series of buy-and-sell moves involving credit default swaps and other derivatives that went wrong because Europe didn't fall apart this winter.
Investors will be eager to know how big the bank's losses will be following the botched trade. The initial estimated loss at the bank was $2 billion but later reports indicated it could balloon to more than four times that.
Analysts see earnings of 79 cents a share for the quarter, compared with $1.27 a share a year ago. The estimates have come down because of the trading debacle. At the end of April analysts were projecting $1.24 a share in earnings.
• Wells Fargo (WFC) is seen delivering good earnings, 81 cents a share, up 16% from a year ago. It's a huge bank and the nation's largest mortgage lender. One in three mortgage loans are now originated through a Wells Fargo office.
It has modified some 772,000 mortgages as of May 31, and so far, the company says, borrowers are paying on time.
There are concerns about the business getting too big. But the company has insisted it has the experience to handle the risk. So far, investors agree; the stock is up 19.9%, compared with JPMorgan's 2% gain.
• 8.30 am PPI
• 9.55 am University of Michigan consumer sentiment
• 1.20 pm Atlanta Fed President Dennis Lockhart on economy
1. Fed's minutes from its June 19-20 meeting -- due Monday – these will be perused carefully for signals on when the Fed might organize a new program of quantitative easing. The divisions within the Fed and its members on whether to make a move at all have been quite strong. The minutes may shed light on how inflexible the opponents are for any more easing.
2. Consumer Credit report -- due Monday -- a gain in nonsecured credit (aka credit cards) would suggest more economic confidence than recent data have indicated.
3. The Labor Department's Producer Price Index -- due Friday -- this should show falling energy prices, but it also shows the first signs of a new round of food inflation from the drought in the Midwest and South.
Overseas Events that may Influence the Market
On Monday the ECB President Mario Draghi will give a testimony to Europe's parliament which will be followed by a meeting of euro zone finance ministers.
Also, outside the United States, a few economic reports could move markets.
These would include:-
• Reports on industrial production in France, Italy and Britain on Tuesday;
• On Thursday, the Japanese central bank's views on its economic health, this includes an interest-rate announcement after a two-day meeting.
If there are additional asset purchases from the Bank of Japan, that would depreciate the yen and would be a short-term positive for global equities.
• China's reports on gross domestic product and industrial production, both on Thursday -- these reports will have the biggest potential impact on markets.
The gross domestic product data out of China will help give the market important clues about the world's second-biggest economy.
With some of the negative news already built into the market, a positive surprise is anticipated.
Economists expect China to report year-on-year GDP growth of 7.6 percent, compared to an 8.1 percent yearly gain in the first quarter.
Other Chinese data in the week ahead includes inflation, loan growth, trade balance and retail sales.
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