Fourth-quarter earnings season “officially” begins today when aluminum company Alcoa reports after the closing bell. Street expectations are that Alcoa will lose a penny a share on revenue of $5.76 billion. The other big report this week will be on Friday when financial giant JPMorgan Chase & Co. is seen posting a profit of 93 cents per share. The S&P 500 is expected to generate earnings growth of 7.8% for the fourth quarter of 2011 (according to data from Thomson Reuters). While Wall Street is getting into the earnings mindset though, there is the potential that Europe might once again claim the spotlight.
French President Nicolas Sarkozy and German Chancellor Angela Merkel are scheduled to meet in Berlin today to discuss the euro zone’s sovereign debt crisis. Markets will also be watching to see how bond auctions in Italy and Spain are received on Thursday. We have been seeing some market data/indicators so far this year showing that our stock markets are becoming less fixated on the news out of Europe (and this is certainly welcome). Still, we are not out of the European woods yet, and any disappointing outcomes there could rattle our markets yet again.
Looking away from Europe we see a domestic economic picture that is generally brightening, at least a little. The U.S. Department of Labor reported that Nonfarm Payroll employment rose by 200,000 in December and the Unemployment Rate fell to 8.5%. Weekly initial jobless claims declined by 15,000 week-over-week. Additionally, the December ISM Manufacturing Index and November Construction Spending reports were both stronger-than-expected.
These numbers corroborate our view that while the U.S. economy is still weak historically speaking, it is on somewhat firmer ground of late – and the major stock market averages posted decent gains last week. The Dow Jones Industrial Average gained 1.2% to 12,360. The NASDAQ Composite rose 2.7% to 2674 and the Standard & Poor’s 500 Index increased 1.6% to 1278. Along with earnings and developments in Europe, markets will also look to economic reports this week to see if they can build upon last week’s gains.
Reports due out include November Consumer Credit data, the Fed’s Beige Book of regional economic activity, Initial Jobless Claims, December Retail Sales, and the University of Michigan Sentiment Index for January. So we are looking forward to a busy week!
The markets are closed next Monday in observance of Martin Luther King, Jr. Day – so we will back with our next memo the following Monday. As always, feel free to contact us with any questions or concerns you may have.
Disclaimer: Data obtained from resources believed to be reliable, but we do not guarantee its accuracy or completeness
