All About Earnings
- Currency Investing
Well the second quarter has just come to an end and everyone on The Street is anxious to see what the results were. According to Bloomberg, stock prices in the second quarter had rebounded sharply from the previous quarter and stock indices were up the most for a quarter since 1998. Of course much of this has to do with the fact that the first quarter was one of the worst for stocks in history, but let’s not ruin a good story for the want of a few facts. Still the question remains, will the market continue to rise?
In order to see if this market has legs and can continue, we must first take look at what has been causing it to rise in the first place. Quite frankly, the only things causing this market to move up are the hope and prayer that second quarter earnings aren’t going to be absolutely atrocious!
As Bob noted in a blog last week, there’s a good probability that there won’t be enough economic data this summer to send the markets significantly higher or lower. This is going to turn the focus back onto individual companies and their earnings. And the dreaded green shoots—will there be signs of life???
Here’s what the market needs to see out of corporate earnings in order to sustain these levels and go higher:
- Companies need to provide somewhat positive guidance for Q3 and beyond.
- Have corporate layoffs allowed companies to reduce their costs enough to begin to return to profitability? Or is more job loss expected? Obviously, more jobs lost mean more difficulty for the economy in general, but this could allow companies to operate “leaner and meaner” to eke out profits.
- The bar has been set very low for these companies so any misses in earnings will be seen as very bearish.
As you can see, there is a lot riding on this corporate earnings season and the outlook right now appears to be pretty bleak. If corporate earnings can show signs of life, and companies are beginning to turn it around, then this could stabilize the markets for the next push higher.
If, on the other hand, earnings come in worse than expected, then all the rhetoric and catch phrases for economic recovery won’t amount to anything. Should the latter occur, keep an eye on the US dollar (UUP) and Japanese yen (FXY), as the flight to safety trade returns and currency investors pour out of the riskier currencies and return to the dollar and yen. We’re already seeing signs of it today with the poor Non-Farm payrolls numbers in the early session.
So earnings kick off next week with Alcoa (AA). Let’s hope that it gets started on a positive note, otherwise it could turn out to be a very long summer!
(ArticlesBase SC #1009221)
Article Tags:
earnings report
,quarter
,economy
,recession
,stock market
,currency
,dollar
,yen
,stimulus package
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