Earnings Season Starts as Stock Market Wobbles

Earnings season kicks off with Alcoa’s after-the-bell report Tuesday.

The first quarter reporting period starts against the backdrop of a stock market pull back, which has shaved 3.3 percent off the S&P 500 since April 2. Earnings for the S&P 500 are expected to show the slowest growth in three years, and analysts have wondered if the earnings season would create an excuse for selling.

Peter Dazeley | The Images Bank | Getty Images

Thomson Reuters reports first quarter earnings growth is expected to be 3.2 percent, or 1.8 percent, if Apple is excluded. It says profits for industrials, up 10.6 percent, should be the best, followed by consumer discretionary companies, with earnings growth of 6.6 percent.

The worst performers for the quarter are expected to be in the materials sector, with an average earnings decline of 14 percent decline, according to Thomson Reuters. Alcoa , a materials company, is expected to report a loss of four cents per share for the quarter, off from a $0.12 per share profit last year. Selerity analysts, in a report, said the decline in Alcoa profits is due to a drop in aluminum prices and from restructuring charges.

“We have earnings season kick off with Alcoa Aluminum, and then we have Google and financials later in the week. There’s a bit of caution in the market. About 65 percent of companies gave guidance that was a little more tepid than what the street was looking for,” said Peter Kenny of Knight Trading.

As the first Dow component to report each quarter, Alcoa’s report is seen as the unofficial start of the earnings season. Chevron also releases its interim report Tuesday.

“There’s a tone of caution in the market. Frankly, it’s justified seeing how the market put in a really tremendous first quarter and start to the second quarter. A pull back would be warranted,” said Kenny. “Even if earnings are spot on, we should see a healthy pullback.”

Kenny said the market could lose a total five to six percent by the end of the week. “Then the questions is ‘where there’? I think ‘where there’ is a lot of horizontal action in the near term,” said Kenny. The S&P 500 gained 32 percent since October before it started pulling back last week.

Zane Brown, fixed income strategist at Lord Abbett, said another major focus this week will be the parade of Fed speakers, starting with Fed Chairman Ben Bernanke’s Monday evening speech.

The market continued to pull back Monday, as traders reacted to the disappointing March employment report, release Friday when the stock market was closed. The selloff was the worst since March 6. The Dow tumbled 130 to 12, 929, and the S&P 500 slid 15 to 1,382.

Already on Friday, traders in the bond market were talking about how the disappointing report, with just 120,000 new jobs created in March, could mean the economy is heading for trouble, and the Fed could have to do more quantitative easing , or QE. So the Fed officials this week are being watched both for what they say about the economy and what they say about extraordinary easing programs.

Tuesday’s speakers include Fed Gov. Daniel Tarullo, on bank stress tests at 10 a.m.; Atlanta Fed President Dennis Lockhart, who makes opening remarks for the Atlanta Fed’s financial markets conference at 12:45 p.m., and Minneapolis Fed President Narayana Kocherlakota who speaks at 1:15 p.m. ET on the economic outlook in Nicollet, Minn.

Wednesday has five Fed speeches, including one from Fed Vice Chair Janet Yellen, viewed as being close to Bernanke in her thinking.

“After we hear from all Fed members, especially with Yellen and Bernanke, they’re likely to be consistent in that they’re a little on the dovish side, but they’re not likely to promise QE3. I think for now, QE3 is unnecessary, and it’s off the table. They might want to preserve QE3 for the upcoming fiscal cliff that Bernanke has referenced a couple of times,” said Brown.

“I think it’s unlikely that we’re going to see QE3 unless we see a dramatic downturn, and certainly the employment number is not representative of that kind of slow down. I think you’ve seen an overreaction to one number, especially since that number was not corroborated by the ADP number the day before, or by the weekly claims numbers,” Brown said.

Besides the Fed speakers, there are some economic reports Tuesday, including the NFIB small business survey at 7:30 a.m. Wholesale trade is reported at 10 a.m., and JOLTS data is also released at 10 a.m. The Treasury auctions $32 billion in 3-year notes at 1 p.m.

A Positive at the Pump

The U.S. Energy Information Administration said Monday that gasoline prices fell for the first time in 11 weeks. The EIA said prices fell to $3.939 per gallon from $3.941 the week earlier.

Oil has been retreating in recent sessions, and WTI lost $0.85 to $102.46 per barrel Monday. Some industry experts have been predicting a peak for gasoline prices.

Follow Patti Domm on Twitter: @pattidomm

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