Earnings Should Boost the Market

10/10/2011 6:30 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Despite the gloomy macro outlook for the world economy, MoneyShow’s Jim Jubak thinks that investors may be encouraged by earnings season…but will it be enough?

The week ahead this week? It’s really simple—it’s earning season.

It starts on Tuesday, October 11, when Alcoa (AA) reports after the market is closed. That’s really the kickoff every quarter, Alcoa, for the whole season, which then unwinds over the next three, four, five, or six weeks as companies report.

What’s really kind of critical about this one, or what’s interesting about this one, is we’re coming out of a very, very depressed market that’s been watching nothing but macro economic news. Depression here, recession there, banks failing, the Euro going down, the dollar going up…all these have been the drivers of not only the market, but fear.

And now, I think with earning season, you’re actually going to get some interesting surprise. Thhe biggest one is going to be that despite all that fear, earnings are not going to look as crummy as you might expect. In fact, I think earnings are going to look pretty good.

Considering people’s sense of disaster looming, I think it doesn’t take a whole lot for the earnings to look good. But we’re still looking at maybe like 10%, 12%, 14% earnings growth in the quarter, and that’s going to convince people that, well, maybe things are slow, but not ready to fall over the cliff.

Some companies will report things that are going to surprise people and put those stocks up. The crucial thing to watch for, though, is not so much what companies say about this quarter—because, as I said, the quarter is going to look pretty good considering how afraid people are—but what they say about next quarter. That’s really where the fear lays.

The fear is that the economy is slowing, we are heading to a recession. People will be waiting to see whether companies that report good earnings for the third quarter are saying, well, we’re seeing a slow down for fourth quarter and 2012 looks XYZ, good, bad, or indifferent.

That’s really going to be make or break for the stock market after people digest some of this stuff. Earnings season—October 11, 2011—and away we go with that.

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