It may be the smallest, coldest and least loved stock in the Dow, but Alcoa (AA) might be the savior that battered investors are craving. That's because, through no fault of its own, the aluminum producer will resume its perennial place at the front of the earnings parade, so to speak, when it reports its second quarter results two short weeks from now, on July 8.
Peter Kenny, the chief market strategist at Knight Capital, points out that what Alcoa says will carry ramifications far beyond the company itself. It will invite a discussion about the broader mood of the economy and the markets.
"The real concern is, what have we seen over the last six weeks that will impact guidance in the next quarter? And I think that's really going to be the story," Kenny says in the attached video. "The forward-looking guidance is clearly going to be heavily dependent upon how the consumer reacts to rising interest rates."
As is often the case, Wall Street's earnings expectations have moved lower as the day of reckoning has gotten closer. FactSet earnings analyst John Butters points out that profit growth targets for the second quarter are now about one-fourth of what they were just three months ago, having fallen to just 1.1% from 4.3% for the S&P 500 (^GSPC), after 80% of the pre-season guidance from companies was negative or below consensus estimates.
"I think, in a word, we can comfortably say right now that guidance will be couched in terms of comfort for those who are looking for stability in the markets," he says, noting that he thinks trailing results will "likely be pretty much in line" with expectations and devoid of "anything massively destructive."
It is also worth noting that just before Alcoa's time to shine, markets will also have the latest June jobs data to digest on Friday, July 5 — right in the middle of what will be a four-day holiday weekend for most people.
If all goes as planned, Kenny is hoping that we will "see a near-term counter-punch to the volatility and the downward pressure."
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- Peter Kenny