October 06, 2012 at 11:44 AM EDT
Here Comes the Third Quarter Earnings Decline!
Saturday, October 5, 11:30 a.m. You’d never know it from the stock market’s action, but the 3rd quarter earnings reporting season begins in earnest on Tuesday when Alcoa (AA) reports, and S&P 500 earnings are forecast to experience their first reversal from growth since the Great Recession ended, expected to decline 2.4%. That’s in comparison [...]

Saturday, October 5, 11:30 a.m.

You’d never know it from the stock market’s action, but the 3rd quarter earnings reporting season begins in earnest on Tuesday when Alcoa (AA) reports, and S&P 500 earnings are forecast to experience their first reversal from growth since the Great Recession ended, expected to decline 2.4%.

That’s in comparison to robust double-digit growth in 2009, 2010, and 2011 that provided legitimate support for the bull market.

Thomson-Reuters reports the negative-to-positive ratio for 3rd quarter earnings forecasts is 4.3 to 1, the most negative since the 3rd quarter of 2001, during the recession of 2001, and the bear market of 2000-2002. 

It’s not only earnings that will need to be watched, but revenues, given the continuing deterioration of global economies.

A big question is whether Wall Street has played its quarterly game well enough, of lowering its earnings forecasts fast enough that it will still be able to say as each company reports, and no matter how dismal the earnings may be, that the company “beat the Street’s estimates”.

Looking beyond the 3rd quarter, Wall Street, always reluctant and behind the curve in cutting its forecasts, will probably be forced to cut its estimates sharply for the 4th quarter and next year as companies report 3rd quarter earnings, and make their excuses (you can bet on worsening global economies to top the list) and lower their guidance.

There’s plenty of room for lowered forecasts considering that for instance Wall Street’s projections for S&P 500 earnings in the 4th quarter are still for 9.5% growth, and for S&P Small Cap 600 earnings to grow 25% next year.

Hewlett-Packard provided an example this week of what can happen when companies catch Wall Street unaware and reports don’t meet or beat the expectation. HP’s stock plunged 13% in a day when it issued guidance for a much steeper than expected decline in 2013 earnings.

Among sectors Thomson-Reuters expects to show the biggest 3rd quarter earnings declines based on company warnings and lowered guidance, are materials, and energy.

That is potentially showing up in the charts and technical indicators.

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Other voices:

Financial Times: “If there is a time for corrections, October is it. There have been more falls of 10% or more in October than any other month. Sentiment measures suggest short-term traders have rushed to join the rally. Speculative positions on futures markets look stretched. The VIX Index of implied correlation – Wall Street’s “fear gauge” – is close to the lowest it has been since the subprime crisis began in 2007. Figures from the EPFR Global show the inflows to ETF’s have been higher only twice since 2007.”

Reuters: ‘Housing Still Impediment to U.S. Growth: Fed Officials’ “New York Fed President William Dudley says the housing market’s failure to fully respond to the Fed’s easy money policies remains a headwind to U.S. growth, while Elizabeth Duke, a governor at the Federal Reserve highlighted problems associated with the “extraordinary” level of abandoned properties throughout the country.”

CNBC: “I Think You Buy This Jobs Report’ “Stocks held their recent gains after Friday’s better than expected jobs reports, suggesting higher market levels ahead, CNBC ‘Fast Money’ traders say. All you need to do is get a couple of good numbers, and we’re headed up to that 1,500 level in the S&P 500.”

To read my weekend newspaper column click here: New Study Shows Sell in May Triples Market’s Gain Long Term. Oct. 5, 2012

Subscribers to Street Smart Report: In addition to the charts and information in the ‘premium content’ area of this blog, the next issue of the newsletter will be available Wednesday in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market.

A mixed day, with a downside reversal in the afternoon from the positive reaction in the morning to the jobs report. The Dow traded between being up 86 points in the morning and down 7 points near the close. But thanks to final minute buy programs it closed up 34 points going into the weekend, while the rest of the market closed flat to down. Trading volume was light at 0.6 billion shares traded on the NYSE.

The Dow closed up 34 points, or 0.3%. The S&P 500 closed unchanged. The NYSE Composite closed up 0.1%. The Nasdaq closed down 0.4%. The Nasdaq 100 closed down 0.6%. The Russell 2000 closed down 0.2%. The DJ Transportation Avg. closed up 0.7%. The DJ Utilities Avg closed down 0.3%.

Gold closed down $12 an ounce at $1,782 an ounce.

Oil closed down $1.76 a barrel at $89.95 a barrel.

The U.S. dollar etf UUP closed unchanged.

The U.S. Treasury bond etf TLT closed down 1.3%.

Yesterday in the Americas outside of U.S..

Argentina closed up 0.7%. Brazil closed up 0.2%. Canada closed down 0.2%.

Yesterday in European Markets.

European markets were up yesterday. The Europe Dow closed up 1.5%. The London FTSE closed up 0.7%. The German DAX closed up 1.3%. France’s CAC closed up 1.6%. Italy closed up 2.3%. Spain closed up 1.8%.

Global markets for the week.

A positive week almost everywhere.


THIS WEEK (October 5)
DJIA13610+ 1.3%
S&P 5001460+ 1.4%
NYSE8384+ 1.6%
NASDAQ3136+ 0.6%
NASD 1002811+ 0.4%
Russ 2000843+ 0.6%
DJTransprts5046+ 3.1%
DJ Utilities480+ 0.9%
XOI Oils1,260+ 0.1%
Gold bull.1,782+ 0.6%
GoldStcks191+ 0.3%
Canada12418+ 0.8%
London5871+ 2.2%
Germany7397+ 2.5%
France3457+ 3.1%
Hong Kong21012+ 0.8%
Japan8863- 0.1%
Australia4513+ 2.4%
S. Korea1995- 0.1%
India18938+ 0.9%
Indonesia4311+ 1.1%
Brazil58571- 1.0%
Mexico41934+ 2.6%
China21840
LAST WEEK (September 28)
DJIA13437- 1.1%
S&P 5001440- 0.3%
NYSE8250- 1.5%
NASDAQ3116- 2.0%
NASD 1002799- 2.2%
Russ 2000837- 2.1%
DJTransprts4892- 0.4%
DJ Utilities475+ 0.9%
XOI Oils1,258- 2.1%
Gold bull.1,772- 0.1%
GoldStcks191- 2.1%
Canada12317- 0.7%
London5742- 1.9%
Germany7216- 3.2%
France3354- 5.0%
Hong Kong20840+ 0.5%
Japan8870- 2.6%
Australia4406- 0.5%
S. Korea1996- 0.3%
India18762+ 0.1%
Indonesia4262+ 0.3%
Brazil59166- 3.5%
Mexico40866+ 1.3%
China2184+ 2.9%
PREVIOUS WEEK (September 21)
DJIA13579- 0.1%
S&P 5001460- 0.3%
NYSE8377- 1.0%
NASDAQ3179- 0.1%
NASD 1002861+ 0.2%
Russ 2000855- 1.1%
DJTransprts4910- 5.9%
DJ Utilities471- 0.2%
XOI Oils1,281- 2.1%
Gold bull.1,773+ 0.1%
GoldStcks195+ 1.7%
Canada12409- 0.7%
London5852- 1.1%
Germany7451+ 0.5%
France3530- 1.4%
Hong Kong20734+ 0.5%
Japan9110- 0.5%
Australia4430+ 0.4%
S. Korea2002- 0.3%
India18752+ 1.6%
Indonesia4244- 0.3%
Brazil61318- 1.2%
Mexico40338- 0.9%
China2122- 4.6%

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Next week’s Economic Reports:

Next week will be an unusually light week for potential market-moving economic reports, almost none, the Small Business Optimism Index, Fed’s Beige Book, Producer Price Index, Consumer Sentiment, and a few others.  To see the full list click here, and look at the left side of the page it takes you to.

However, of perhaps more importance, the 3rd quarter earnings reporting period will begin.

To read my weekend newspaper column click here: New Study Shows Sell in May Triples Market’s Gain Long Term. Oct. 5, 2012

Subscribers to Street Smart Report: In addition to the charts and information in the ‘premium content’ area of this blog, there is an in-depth U.S. Market update from Wednesday in your secure area of the Street Smart Report website.

I’ll be back with the next regular blog post on Tuesday morning at 9:25 a.m.

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