Equities markets are cruising near 52-week highs as earnings season gets rolling. Over the past week, the Dow Jones Industrial Average DJIA +0.26% has climbed 1.3%, the S&P 500 Index SPX -0.03% has risen 1.4%, and the Nasdaq Composite Index COMP -0.42% has advanced 0.6%.
Investors will get their first taste of big-ticket earnings for the third quarter next week as Alcoa Inc. and J.P Morgan Chase & Co. report results, but international economic events may provide a distraction from earnings season.
Markets have gotten a boost from another infusion of quantitative easing from the Federal Reserve and investors will get to see if stocks can support those gains as earnings season ramps up.
Tuesday will mark the traditional start of the earnings season as Alcoa AA +0.22% , the first Dow component to report each quarter, gives its results reports after the closing bell.
A slowdown of growth in China along with Europe’s recession and fiscal woes are expected to have put a dent in international revenue for most multinational firms.
Also on Tuesday, after the closing bell, Yum Brands Inc. YUM -0.71% reports. Luschini said Yum results should also provide a good preview of consumer activity ahead of Friday’s University of Michigan-Thomson Reuters consumer-sentiment index.
Yum results should also provide a glimpse into consumer spending in China. While the chain recently announced its 4,000th KFC store in China, it has reported a slowdown in same-store sales growth. Read more on Yum and U.S. restaurant earnings outlook.
And, as the nation wraps up its Golden Week holiday on Sunday, attention will once more turn to the People’s Bank of China, which is expected to release September financial statistics later in the week.
Of particular interest will be new loan growth figures for September, which should offer guidance about whether more easing measures are on the way, said John Canally, investment strategist and economist for LPL Financial.
In September, the Chinese central bank injected 365 billion yuan ($57.9 billion) into the financial system to prop up equity markets, but anticipated supporting measures from Chinese securities regulators never materialized. Read more on China easing.
Banks earnings in focus on Friday
Two big financial earnings reports will cap the week when Dow-component J.P. Morgan Chase JPM -0.26% and Wells Fargo & Co. WFC -0.36% give their results on Friday. those reports should also provide a good gauge of consumer health through such figures as mortgage banking activity and reserve releases.
Financial companies are expected to have the highest earnings growth rate, 10%, in the recent quarter, according to John Butters, senior earnings analyst at FactSet.
But even with earnings season grabbing attention, Canally said much of his attention will be focused abroad. The International Monetary Fund is scheduled to release its World Economic Outlook report on Tuesday at its week-long annual meeting in Tokyo.
“The world’s got to get used to China not growing at 10% a year anymore,” Canally said.
Also, European finance ministers are expected to tell the United States to get its own fiscal house in order and deal with the so-called fiscal cliff at a G7 meeting in Tokyo Thursday. Read more on European ministers planned statement to U.S.
But while G7 meetings may provide some distraction, markets are not as sensitive to them as they used to be since the European Central Bank offered to backstop much of the EU’s economic turmoil with a bond-buying plan, Canally noted. Read more on the ECB.
Closer to home, Canally said he’ll be watching out for the Federal Reserve’s Beige Book on Wednesday to gauge how Main Street is looking at the economy, and see if their view is consistent with the jobs reports that came out on Friday.
Other earnings reports due out next week include Costco Wholesale Corp. COST +0.31% on Wednesday, and Fastenal Co. FAST -0.72% and Safeway Inc. SWY -1.16% on Thursday.
Safeway should receive a big boost in earnings-per-share this quarter given the supermarket operator’s aggressive share buyback plan over the past year Read more on Safeway and 9 other stocks set to get an EPS buyback boost .
Another thing to look out for when earnings reports start to fly are the outlooks for the fourth quarter and 2013.
“There’s concern that the market will over-interpret when outlooks come down, because at the end of the day earnings drives stock markets,” Canally said.
Third-quarter earnings season is expected to be the worst season since the fourth quarter of 2009, when the country was crawling out of the recession, with an expected 2.7% drop in earnings for the S&P 500 SPX -0.03% and flat year-over-year revenue.
Also, 78% of S&P 500 companies that provided an earnings outlook, 80 out of 103, have said they will miss the Wall Street consensus. Read more on the third-quarter earnings season outlook.
Even with all that negativity, the S&P 500 is expected to turn in its third highest EPS result of $25, just under the all-time high of $25.43 in the second quarter.
With an expected $26.94 for the fourth-quarter, analysts expect that estimate to decline once companies start issuing conservative outlooks.
Other economic reports due out next week are August wholesale inventories on Wednesday; the August trade deficit and September federal budget on Thursday; and the September producer price index on Friday
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