Next week the US second quarter profit reporting season starts with Alcoa popping up Wednesday night, our time.
While the actual figures will be important, what will be more important will be if more companies start giving guidance about the third and fourth quarters and into 2010.
The phrase ‘limited visibility’ has never been heard so much as in the past year and a half in the US.
More and more companies have stopped talking about the outlook and confined themselves to generalities or to how tough it has been.
Many have been concentrating on surviving the present, hoping that the future will take care of itself.
So if there’s a rise in not only guidance, but commentary, that in itself will tell us there’s more confidence in the US than there was in the reporting seasons in April and May and in January and February of this year in particular.
That in turn will go along way to conditioning expectations and market sentiment because US share prices (and those in many other markets) have drifted for the past month or so as investors have wondered, ‘has it run too far’.
‘It’ being the market rebound since March.
Even though its high summer in the US, trading volumes have been weak: investors still worry that the economy remains prone to shocks, and credit markets are still relying on massive government support to stay liquid.
Bears say the economy could be setting up for a double-dip recession that would push stocks to new lows over the next six months (A ‘W’ pattern recovery).
Marketwatch carried this quote this week:
"The remainder of 2009 "is likely to be marked by negative real growth, weak nominal growth and significant earnings declines," said Bob Doll, chief investment officer of equities at BlackRock Inc.
Blackrock is in the process of becoming the world’s biggest investor with the takeover of BGI from Barclays Bank, so his view carries some weight.
"When recovery finally comes, it is likely to be muted as deleveraging on the part of the consumer and the financial sector will take many years," he said.
Standard & Poor’s S&P equity analysts believe earnings will fall 17% from the June quarter of 2009 for the 500 companies in the Index.
That would be better than the 39% year-over-year decline in the first quarter.
But there are wide variations in calls: Reuters Thompson expect a 34% fall.
Wall Street analysts having been knocking down their profit estimates, and there is wide variation on 2009 and 2010 forecasts due to the economic uncertainty.
Bloomberg this week said:" The second-quarter earnings season kicks off next week with Alcoa the largest U.S. aluminum producer, reporting results on July 8.
"Analysts estimate profits in the S&P 500 declined 34 percent in the second quarter and will slump 22 percent on average in the third, before rebounding 62 percent in the final three-month period, according to Bloomberg data."
Marketwatch said that S&P’s Investment Policy Committee has predicted year-over-year changes in S&P 500 earnings per share will climb out of the red by the end of 2009, even though current valuations don’t justify moving higher in the short term.
The index hit an intraday low of 667 on March 6, and topped out at over 956 on June 11. It was around 1,500 in late 2007 as the credit crunch starting whacking markets. It closed at 923.33 on Wednesday.
The rise to early June was 40%; it’s around 3% short of that. Bloomberg pointed out that bank shares have gone sideways since late May in the wash up of the stress test results and the surge of capital raisings by the 19 banks on the stress list.
Half of those have now freed themselves from the Government, but their prices haven’t benefited from this freedom. Investors remain worried about failures in regional and local banks (eight in the past fortnight alone and 45 so far this year).
In fact regional banks have underperformed the banking sector as whole because of worries about stability, commercial property and credit card loans and the continuing home mortgage disasters.
If you had to pick a sector that will be worth watching and reading the commentaries, it will be the US regional banking sector. There are still a lot of basket cases there, especially in California, Florida, Georgia and throughout the Midwest.
The bullish view was reported by Marketwatch who quoted one US fund manager.
“The landscape for stocks looks far brighter that it did at the start of the year or even three months ago, says Fred Dickson, chief market strategist at Davidson Cos.
After the June unemployment figures, will he still be as bullish?
"We now strongly believe the stock market is in the early stages of a healthy bull market.
"Investor confidence continues to rise as does consumer confidence, both of which are key ingredients to sustaining a recovery and stabilizing the economy," wrote Dickson in a note. He expects most market indexes to end the year with high single-digit or low double-digit percentage gains."
During the past three months, all but one of the S&P 500’s 10 industry groups have pulled into positive territory — with the biggest gains seen in the hardest hit financial sector, up 30% for the quarter and off 4.2% for the year-to-date.
The cyclically sensitive technology sector proved the second-biggest advancer, climbing 18% during the quarter and 25% year to date.
