Fin - Breakout - US

Ignore Greece, Q2 Earnings Matter Most


For a nation that invented the marathon some 2,500 years ago, Greece's 12-month debt dance has shown, if nothing else, its ability to go the distance. Although a solution has yet to be reached, it is increasingly clear that this time, unlike the original Greek messenger from Marathon who ran to Athens to proclaim "We have won!" the imminent announcement will be more along the lines of "We have succumbed."

In fact, the Greece debt disaster is one of three key things that Macke says are fully ''baked in'' to the market and thus ready to burn you if you try to grab them without putting on your oven mitts.

My limping co-host also points out that if you're counting on weak second-quarter earnings results to drive the markets lower to suit your bearish bets, you'd be wise to know that Squishy & Murky have beaten you there and already own the ground floor of earnings and guidance.

And lastly, if you're waiting for some sort of pop on the Potomac in terms of the debt ceiling and budget negotiations, you might want to lower the bar because my bi-coastal buddy is on the record that the deal - any deal - if and whenever it gets done, will be watered down and modest at bet.

On my side of the table, it's all about the market as we wind down the worst quarter in a year and prepare for the start of earnings season when Alcoa (AA) reports on July 11.

What troubles me is that while stocks, oil, and numerous economic indicators have come down this quarter, earnings estimates have actually gone up. In fact, since the end of the 1st quarter, Factset data shows the median growth rate for the S&P 500 has risen 9.5% with analysts now forecasting 13.8% profit growth this quarter, up from 12.6% 90 days ago. Drill down further and you will see that despite the declining backdrop, 6 out of 10 sectors have seen their growth rates go up this quarter, most notably Telecom and Energy which have respectively seen 92% and 120% upward revisions to earnings growth forecasts so far this quarter.

Even Alcoa numbers have crept higher this quarter. Factset consensus for Q2 EPS is now $0.35. This would be roughly a 170% improvement from a year ago and mark the shrunken aluminum producer's best quarterly profits in 2 1/2 years (assuming they hit the number, which Macke predicts they won't).

So the bottom line in all of this takes me back to the old adage, "to move the market, you must surprise the market." Therefore, don't just be aware of the unknown, but also be aware of the known.

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