Midday Report: Market Faces Expectations of Weak First Quarter Earnings

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Alcoa Inc. employee Stephen Tally makes a line on the rod of a carbon anode before it is set into place at the company's Mt. Holly production plant in Goose Creek, South Carolina.  Photographer: Stephen Morton/Bloomberg via Getty Images
Stephen Morton/Bloomberg via Getty ImagesAlcoa Inc. employee Stephen Tally makes a line on the rod of a carbon anode before it is set into place at the company's Mt. Holly production plant in Goose Creek, South Carolina.
Earnings season could be the next big hurdle for stock market investors.

As usual, Alcoa (AA) kicks off the earnings season after today's closing bell. Even though its ticker symbol is AA, this is not done alphabetically.

For many years, Alcoa was viewed as a trendsetter, not just because it's first, but because it was seen as a proxy for the broader economy. That's not as true now; Alcoa has become more of a commodities play. And with aluminum prices slumping, the company is expected to post flat to slightly lower earnings.

Later this week we'll hear from banking giants JPMorgan Chase (JPM) and Wells Fargo (WFC). Wells, a leading provider of home mortgages, could provide a look at whether the housing industry is still on the upswing.

And next week, the earnings calendar fills up. We'll get a slew of quarterly reports. Overall, first quarter earnings are expected to be relatively weak, after strong gains the past few years.

That's part of the problem: Those big gains we saw in 2011 and 2012 came off of the Great Recession, so the comparisons were very easy. That's no longer the case. Thomson Reuters projects earnings to rise by just 1.6 percent in the first quarter, and other forecasts are even weaker. Bloomberg's survey of analysts points to a 1.8 percent decline in profits at S&P 500 companies. That would be first decrease since 2009.

Some of the weakness is due to international issues. Analysts point to the recession in Europe and the economic slowdown in China. A number of multinationals have already lowered their earnings forecasts, citing problems overseas. Ford (F), FedEx (FDX) and Caterpillar (CAT) have all cut their outlooks. Cat could report back-to-back declines for the first time since 2009.

But there's some optimism in other sectors. Consumer products companies such as Procter & Gamble (PG) and Clorox (CLX) have remained positive about their results, and analysts say retailers also should do well.

And results for the first quarter could be the low spot for the year. Most analysts expect earnings growth to improve as the year rolls on. Right now, the expectation for the fourth quarter is for earnings growth of about 13 percent.

–Produced by Drew Trachtenberg



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