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Alcoa Is a Bright Spot in Troubled Market

An after-the-bell earnings beat by Alcoa could bring a bit of cheer to a market Wednesday that has once more become worried about Europe’s ability to contain its debt crisis.

Alcoa
Jeff Swensen | Getty Images
Alcoa

Fears of contagion from Europe became the latest excuse for a stock market rout that started last week, after Fed meeting minutes revealed the Fed had no plans to do further easing in the near future. The selling picked up speed Monday, after Friday’s March jobs report proved disappointing.

A flock of Fed speakers will be of interest Wednesday, as investors hold out hope for some commentary on potential monetary easing, or any new views on the economy. The most important comments, however, could come after the market close when Fed Vice Chair Janet Yellen, viewed as the closest to Fed Chairman Ben Bernanke, speaks in the 7 p.m. hour.

Otherwise, traders will be watching for headlines from the Fed’s beige book on the economy, released at 2 p.m. There are also import prices at 8:30 a.m., and importantly, the auction of $29 billion in reopened 10-year notes at 1 p.m. The 10-year yield fell through 2 percent Tuesday for the first time since March 12, as stocks sold off and investors sought the safety of bonds.

The Dow lost 213 points Tuesday to 12,715, in its worst sell off of the year. The S&P 500 fell 23 points to 1,358, falling through the key 1,370 area and breaking through its 50-day moving average at 1,372. The major indices are now down just over 4 percent in the past week, in the worst sell off since November. Stocks were up more than 30 percent since October, before the recent pullback.

“I think we’ll try to bounce tomorrow. I think what traders will be watching is if we reclaim the 50-day moving average. The longer we stay below it, the more likely we’ll see lower prices. If we reclaim the 50-day, it will be a triumph for the bulls,” said T3Live.com’s Scott Redler, who watches the market’s short term technical moves.

Analysts have been predicting that the market was due to pullback, and it is expected to be relatively shallow.

“The bulls got spoiled. The corrective action is well underway. The question is, is it 50 percent done? 70 percent done? Or is it still a ways to go? The next point of reference is 1,335 to 1,345 (on the S&P 500),” said Redler. “It’s good (stocks got) discounted into earnings, so now maybe the earnings will be strong enough so we can bounce.”

Redler said stocks tried to steady Tuesday morning but the market broke down right around the European close, when Apple and other leaders declined.

Barry Knapp, Barclays Capital head of equity portfolio strategy, said the choppiness may stay around for a while. “I think it’s a mixed bag at best. On the plus side, the expectations for the current quarter have been marked down so much the hurdle isn’t very high. The early part of the earnings season, other than Alcoa, is financials and tech, and financials and tech aren’t going to be great, but they’ll be on the better side of the earnings season,” he said. Knapp said he is more concerned about the profits of the industrial sector, reporting later in the quarter.

“I think the second quarter is going to be very tough,” said Knapp. The market is now focused on the possibility of another Fed quantitative easing program, or asset purchases, at the June meeting, instead of the April 24/25 meeting. But traders are watching that meeting for any clues on the Fed’s “operation twist,” which expires in June. In that program, the Fed is buying longer dated Treasurys and selling shorter dated securities.

“I think we’ll go lower than we are now, but I think that maybe comes a little later in the month. We may have an okay beginning of earnings season,” Knapp said. Later in the month, “There’s the GDP report (April 27), the Fed meeting, and then we trade lower.”

Knapp said he sees fair value for the S&P at 1,275. “But that doesn’t mean we have to trade there. At 1,275, I would be pounding the table to buy, but I just don’t know if we’re going to get there,” he said.

Euro Trashed

Even as Italian and Spanish yields snapped wider against bunds, which were yielding near record lows, the euro’s decline was muted. The euro held the key 1.30 level, finishing the day at 1.3081, off 0.2 percent.

Italian stocks lost nearly 5 percent and Spain’s market lost 3 percent. France was also 3 percent lower.

U.S. analysts saw no one catalyst, noting that rising sovereign yields have gotten more worrisome and that was one spark for the U.S. selloff. As Spain announced new fiscal measures Tuesday, the head of the Bank of Spain said its banks may need more capital if the economy performs worse than expected. That comment helped drive bank shares lower across Europe. European markets were also open Tuesday for the first time, since the release of the disappointing U.S. jobs report that showed just 120,000 jobs were created in March.

“Clearly, what the markets are focusing on is the Spanish growth environment,” said Robert Sinche, head of global currency strategy at RBS. “This isn’t something where you can say there’s a coupon payment due April 26, so they do something by April 26. This is an issue of sentiment, and this is about how growth does or doesn’t materialize and how the domestic politics in Spain respond to it.”

“The markets have decided these are not going to go well, and a lot of these risks are back in play. And because the leaders in Europe felt the combination of the Greek restructuring and the LTRO (liquidity program) had really addressed the crisis for a while, and the first stage of dealing with an issue is realizing you have a problem, it’s not clear to me they realize they have a problem,” said Sinche.

The euro should stay under pressure as a result. “It’s not a new problem. It’s the same old problem. Too much debt. Too little growth,” he said.

What Else to Watch

Alcoa stock could get a lift in early trading, helping the Dow. Alcoa shares traded higher late Tuesday, after it reported a profit of 9 cents per share, compared to expectations for a loss of 3 cents. Alcoa’s earnings report marks the start of the earnings season, as it’s the first Dow component to report. It is also viewed as an economic bellwether.

Alcoa reported net income of $94 million, after reporting a $191 million loss in the fourth quarter. Revenue was $6 billion, topping the $5.77 billion forecast by analysts. It said sales growth came from across most of its markets, which include automobiles, aerospace, packaging and industrial products. The company also continues to expect aluminum demand growth of 7 percent this year.

Other companies to watch Wednesday, include Progressive , which has earnings ahead of the opening bell, and Carnival , which holds its shareholder meeting in Miami Beach, Fla. at 10 a.m.

Besides Yellen, Fed speakers include Kansas City Fed President Esther George, at 9:30 a.m. on financial stability; Boston Fed President Eric Rosengren at 10:30 a.m. joins a panel on financial reform; Atlanta Fed President Dennis Lockhart at 12 p.m. on financial reform, and St. Louis Fed President James Bullard, at 5 p.m. makes comments and takes questions at a lecture at the St. Louis Fed.

Oil and gasoline inventory data is released at 10:30 a.m. ET

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.