If you have ever been in a building where there has been a fire, you know how difficult it is to get rid of the smell of smoke. But even when it's technically gone, your nose still works overtime trying to discover any hint of a trace. That's very similar to what's happening on Wall Street this morning, where stocks look set to decline for a fourth consecutive session, and traders everywhere have developed a nose for bad news.
Where once not very long ago, no headline or event seemed able to pierce the upward optimism of investors, suddenly the street is teeming with bloodhounds who are eager to find fault and think they smell smoke at every turn. To say we're facing an important psychological test this week fails to capture the true state of anxiety that's currently in the market.
As much as Alcoa (AA) kicks off earnings season Tuesday afternoon, the impact and indication of the aluminum producer's results has dramatically declined.
"They're a serial disappointer," say Aaron Task, host of The Daily Ticker in the attached video. "What Bernanke says tonight as far more important than what Alcoa says tomorrow." In fact, Task is so down on Alcoa he calls their earnings ''worthless'' in terms of their guidance for the rest of earnings season.
Officially, Factset reports that growth estimates for the S&P 500 have fallen from 10% to -0.1% in the past 6 months, at a time in which stocks have delivered an almost uninterrupted 30% gain. And as much as Alcoa is forecast to post a $0.05 loss versus a $0.28 gain a year ago, a $0.02 loss or a breakeven quarter would still mark an awful retreat from a year ago, and yet, still be considered a ''beat'', or as I like to call it, "under-disappointment" (which by the way I predict will be a key theme this season).
"A bad first quarter is expected," Task says, adding that "the market is saying that things aren't as good as they were last quarter and on a year-over-year basis, but we all know that. So how much more downside based on earnings is there going to be?"
As such, Task will be far more influenced by what grocery giant SuperValu (SVU) has to say tomorrow morning, or what Google (GOOG) or a trucking outfit like JB Hunt (JBHT) has to say when they report after the close of trading Thursday.
The point is, a market determined to find bad news will likely succeed, no matter if it is within Alcoa's results, from the mouth of Ben Bernanke, or from the never-ending drip of economic data. Given that stocks were already transitioning to a more defensive posture prior to the payroll disaster on Friday, it will take something big, new and unexpected to reverse sentiment now.