Earnings Derby: Alcoa Strikes Out, Google To The Plate, JPMorgan On Deck

12 Oct

A lack of bad news before the end of trading on Tuesday allowed stocks to maintain their levitation, closing essentially flat for the day and far higher than one week ago.   After the close, however, Alcoa stunk up the joint, kicking off earnings season by missing analysts’ consensus earnings forecast on EPS. Despite topping revenue estimates, the aluminum producer’s shares were tumbling 4.8% in after-hours electronic trading.

Despite the shaky start with Alcoa’s whiff and swift punishment, this earnings season could be a decent one in which companies that beat notched-down sales and profit expectations can see their share prices quickly take flight.

Due to report earnings on Thursday are Google and JPMorgan Chase.   They’re both worth a look–Google for its tendency to crush estimates, and JPMorgan as a speculative financial play that pays you for your time and patience, offering a dividend good for a 3.3% yield.   Fellow financial firms Goldman Sachs and Bank of America don’t report until October 18, and Citigroup reports next Monday, October 17.

Check out today’s Market Blaster video for a look at valuation of GOOG and JPM, and to see how cyclical groups like steel and coal have rebounded mightily and still look like values if the world economy doesn’t slip into the abyss. SLX and KOL are both up nearly 20% in a week.

It’s been a week since last Tuesday and Wednesday when most world stock indexes plunged to their lowest levels since early August.  The S&P 500 SPDR (SPY) ETF was in bear market territory, down better than 20% from its April 29 high at 137, plumbing new yearly lows at 108.

Since then, stocks have sailed higher, with the SPY tacking on better than 11% from intraday lows six days ago.  The appearance of a plan to fortify European (mostly French) banks against losses on bad Greek loans provided the catalyst for an explosive rally off of deeply oversold conditions coming into the first week of October.

Some of the biggest recoveries in the week-long rally have been at the epicenter of the crisis.  BNP Paribas is up 26% in the past week, Deutsche Bank is up 16%.

Country fund ETFs like the iShares series have been a straightforward way to play the pop: EWG (Germany) is up 15%, EWQ (France) higher by 14% since October 3, and the iShares Italy Index (EWI) has blasted 17.5% higher.

Also mentioned in the Market Blaster video, small- and midcap stocks, had been trailing larger, more defensive stocks year-to-date. Since 1999, the large cap SPY has produced a total return of less that 10%, while the SPDR Midcap 400 (MDY) is up 100%. If the market recovery sticks, expect the more volatile but far peppier MDY and IWM to outpace the big boys in the SPY.

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