The S&P 500 is up 4 percent this week, it's best gain in a long time, and it's a simple story: Alcoa and a number of retailers are all signaling that the economy is slowly improving, and for the moment "slowly" is good enough for the stock market.
Take a look at the big gains made by key cyclicals this week:
- Freeport-McMoran up 12%
- Alcoa up 10%
- Caterpillar up 9%
- Potash up 6%
What about next week? Here's what we need to hear from three key companies that are reporting:
IBM : Reporting Thursday. IBM revised earnings upward after the June quarter, so it's unlikely they would do so again, but if they did it would be a real sign of improvement. Merely saying the market has stabilized is unlikely to move the stock forward, given that IBM will close today at a 52-week high.
As always, services are key; they are now more than half of sales: look for comments that signings are increasing. IBM has been able to increase signings each of the last three quarters year over year despite the lousy macroeconomic environment.
Johnson & Johnson: Reporting Tuesday. Margin expansion has been key, mostly on cost controls; look for an update on medical devices and diagnostics during its annual meeting October 13th. JNJ has significant exposure to elective surgery, which could be greatly impacted by the outcome of healthcare reform.
JP Morgan: Reporting Wednesday. trading profits, particularly in fixed income, should be substantial but perhaps not as high as the prior quarter; asset management should be strong on stock market appreciation, and mortgage banking may even show some strength. The big question: how much reserve building will be necessary? Are non-performing loans and net charge-offs slowing down?
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