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Earnings Ahead, Week of July 9

07/09/2012

This week begins the second quarter reporting period for U.S. corporations. Earnings continue to act as a tailwind for the capital markets. In fact, since 2009, corporate earnings have been the most consistent market tailwind.  

 

To date, 24 of the S&P 500® Index corporations have reported second quarter earnings early, with sales growth of 4.21% and EPS growth of 1.24%.

 

Nike (NKE), which reported early on June 28, reported sales growth of 12.21% and EPS contraction of -3.23%. More importantly, NKE highlighted three of the major concerns investors will have for the upcoming season – China slowdown, Europe recessions, and a currency headwind.

 

I expect extremely conservative guidance from the remainder of SPX companies that report. For overall sales and EPS growth, I expect reports in at slightly above or slightly below 5%. Either way, earnings are the next major catalyst for the markets. Over the next few weeks, I will highlight companies with market relevancy that investors should focus on and offer observations on select earnings and CEO conference call commentary.  

 

Finally, as I write this blog on Monday, July 9, the SPX is trading at 1349.61, just a touch below this year’s SPX trading range midpoint of 1349.73. It is rather ironic, and somewhat impressive, that the SPX is still trading right at its yearly midpoint given the overwhelmingly negative news constantly being priced in. An interesting set-up as corporate earnings take their turn at center stage.

 

This week’s earnings…

 

Monday, July 9 – Alcoa (AA) EPS consensus estimate $0.05

 

  • AA expectations are low and will remain low. Expect any market impact to be fleeting at best.

 

 

Wednesday, July 11 – Marriot International (MAR) EPS consensus estimate $0.42 and Charles Schwab (SCHW) EPS consensus estimate $0.18

 

  • MAR has the potential to provide excellent early insight toward domestic consumer spending trends. It also offers a small glimpse into the potential duration of the China slowdown. Does MAR feel comfortable that the China slowdown is temporary and , thus, will continue to spend in China, expanding its relatively small footprint?

 

  • SCHW expectations for capital market companies are low and will remain low. Expect any market impact to be fleeting at best.

 

 

Thursday, July 12 – Google (GOOG) EPS consensus estimate $10.11

 

  • Ignore the stock price move in GOOG as any indicator. Rather, the focus of GOOG earnings will be on the condition of advertising and new consumer technology initiatives.

 

 

Friday, July 13 – JP Morgan Chase (JPM) EPS consensus estimate $0.78 and Wells Fargo (WFC) EPS consensus estimate $0.81

 

  • The JPM and WFC results, and subsequent individual price action, will have the most potential to impact the direction of the SPX in both the near term and over the coming months. It may just be the highlight of the week.  

 

 

 

Figure 1.1 S&P 500 Index (SPX) Year To Date

 

Source: Bloomberg

 

 

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.