The Most Important Earnings Season in a Decade


I’ve reported on literally thousands of earnings announcements through the years, and as you know, the flurry of quarterly reports is always an important time on Wall Street.

But I believe this particular reporting season, which kicked off Wednesday, is probably the most important in the last 10 years.

The reason: Investors are at the point where they need to see real evidence that economic conditions are improving, or at least about to improve.

Remember a few months ago when all of those economists were saying that the recession would end in the third quarter? Well, here we are.

While everyone will pay attention to the actual dollars - or cents-per-share that companies earn, I believe the most critical information will be the forward-looking guidance given by CEOs and other senior managers. Specifically, just how clear is their “visibility” for the current quarter and beyond? Do they see a better climate now, or in the fourth quarter? Or do they not expect improvement until next year?

The expectations set by companies will go a long way toward dictating if all of the cash sitting on the sidelines will be put to work and where. Consequently, they will also be one of the main factors in where the market goes from here.

I’ve listened to my share of conference calls that companies hold in conjunction with their earnings announcements, and I know they can be mind-numbing as analysts painstakingly pick through a mountain of minutiae. This earnings season, however, I think you will find it worth your while to listen to the calls of companies you own or are considering investing in. Listen carefully to hear precisely what management projects for the future.

This quarter’s season kicked off on a positive note Wednesday when Alcoa’s losses were less than expected. Management was also cautiously optimistic in saying that some of the company’s end markets could be stabilizing, including U.S. beverage cans and autos. (Alcoa’s quarterly loss smaller than expected)

This certainly lends some credence to talk of a commodities trade higher, both as an “inflation trade” as well as with increasing demand.

Time will tell, but it was certainly a nice start. One earnings announcement from one blue chip company doesn’t constitute a trend, so we need to continue to watch closely over the next few weeks.

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