Earnings Season Stinging Stocks

The earnings season is smacking the stock market even before it’s begun.

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for CNBC.com
A trader at the New York Stock Exchange.

Just a few companies have reported, or warned, raising the anxiety level for the earnings season. Earlier this week, Alcoa , the first Dow component to report, lowered its forecast for aluminum consumption, and engine maker Cummins issued a lowered 2012 forecast, blaming customer spending delays in a weaker global economy.

“It’s a little bit of the boy who cried wolf. We’ve had these concerns about the last five earnings seasons,” said Steve Massocca of Wedbush Securities, adding each time earnings were better-than-expected. “Maybe people think it’s for real this time. You had a market that’s rallied a lot this year. You have a market that has a little air under it.”

Fastenal , Safeway and Winnebago report Thursday, and the next big reports are Wells Fargo and J.P. Morgan on Friday.

“It’s economic concerns (and earnings.) To me they go hand in hand, whether its Avnet or Cummins,” said Peter Boockvar, strategist with Miller Taback. Electronics distributor Avnet warned its first fiscal quarter would be weaker-than-expected.

“Even with the weakness, it was a very bizarre day because the Russell 2000 was down a full point, when the Dow fell 128 points, which tells me people are worried about those companies that have overseas exposure,” Boockvar said. The smaller cap Russell companies are more domestic in nature.

The Dow’s 128-point drop to 13,344 Wednesday was its third consecutive decline. The S&P 500 was down 8 points to 1432, and the Nasdaq fell 13 to 3051. The Russell’s one point decline put it at 826.

“People are going to be on egg shells for the next four weeks, as we go through earning season. It’s not just earnings themselves. It’s going to be guidance that’s going to be very sketchy,” said Boockvar. “If you have exposure in China, and you have exposure in Europe, what kind of visibility can you have?”

Besides earnings, investors will be watching weekly jobless claims at 8:30 a.m. ET. There is also international trade and import prices at 8:30. The Treasury auctions 30-year bonds at 1 p.m.

Economists expect to see 365,000 jobless claims, down from 367,000 last week. “Claims will be important. We’ve seen below 370,000 for the last two weeks, which is a measure of tempering firings, but people have learned that has not translated into hiring,” Boockvar said.

The first vice presidential debate takes place Thursday at 9 p.m., and it will be watched closely after President Obama’s poor performance in the first presidential debate last week. Republican Mitt Romney, viewed as winner of that debate, has since seen his poll numbers catch up with Obama, who had been leading. In fact, stock sectors, such as coal that would benefit from a Romney presidency have been rising over the past week.

The election, as well as earnings, is expected to add to market volatility for the next four weeks. “We’re got ourselves a horse race here. It’s one issue for the market - of many,” said Massocca.

Follow Patti Domm on Twitter: @pattidomm

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