An Early Review of Earnings

04/16/2013 8:30 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

As we start another earnings season, MoneyShow's Senior Markets Editor Jim Jubak shares what he is seeing so far, and what investors should focus on going forward.

The first couple of days of earnings season for the first quarter sound fairly optimistic. The market is moving up, analysts are saying it’s not going to be that hard to surpass expectations—and that’s what you should really focus on: Why are people feeling optimistic?

They’re not feeling optimistic because earnings are going to be so great, that growth is going to be so fantastic. What they’re saying basically—and they are the Wall Street analysts—what they are saying is that expectations have been driven down so low that companies should have no trouble meeting them, and we should get a bounce in stock after stock after stock after stock.

That’s possible, but there’s one other element here which we really haven’t had yet, except maybe a little bit from Alcoa (AA), and that is, what does the company say for the rest of 2013? After all, the first quarter is done and it doesn’t really matter anymore. So what are companies saying in their guidance for the next quarter?

Alcoa, for example, really beat. It announced 11 cents when people were expecting eight cents for the quarter. Then it said, "Well, we’re not going to raise our forecast for aluminum demand growth." It’s still 7%.

People notice that revenue in fact was down, and that earnings were therefore up on cost cutting, and said how long can you keep doing that? The company really didn’t say anything that made people feel very, very, very, very enthusiastic about the rest of 2013...so the stock really moved nowhere despite that surprise.

That’s the thing that worries me. I think it’s the thing that worries a lot of people. There are signs that what the US economy is headed for is another summer slump. We had one last year. We had one the year before. Not a move back to recession, but a definite slowdown in growth during the summer quarters.

If that happens again, you’ll start to see it in guidance for this quarter, and that will give kind of a negative cast to what is so far a very optimistic earnings season based on very little evidence.

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