The Exchange

Last Call for Earnings Season: What’s the Takeaway?

The Exchange

By Marek Fuchs

Now that Home Depot's (HD) second-quarter earnings are in the bag, we've hit the Last Chance Saloon stage of earnings season: There's only a small bushel of earnings reports – most in retail – and Wednesday’s FOMC minutes to go.

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Until now, the economy and stock market have appeared rudderless. But with Home Depot now behind and so little ahead, here’s the operative question: Will we learn, in this final flash of the earnings season, where in the wide world of amorphous economies we stand?

Until now, speculative fervor has been ascendant. The stock market has hit highs, despite nagging evidence that the economy was once again stuck in the mud. Employment has been unimpressive, if short of disastrous. Economic growth has ebbed and flowed with the tides – with a recent emphasis on ebb.

Remaining fears

Home Depot’s earnings report, though admirable, won’t put any of these fears to bed. In fact, by the end of the week, worry will likely win out and public opinion, though obviously not unanimous, will tip toward the sense that the good times (if you can even call them that) are behind us.

[See related: Home Depot: Is It the World's Most Important Stock?]

Granted: Home Depot’s results were good, offering a potential counterpoint to Walmart's (WMT) thin-gruel of a report last week. Home Depot reported earnings of $1.24 a share on revenue of $22.5 billion, outpacing Thomson Reuters estimates of $1.21 and $21.80 billion. They raised their full-year guidance to $3.60, up $0.08. Not too shabby.

There is, though, the matter of Lowe’s (LOW), which reports on Wednesday. The dueling home improvement giants have not always moved in sync. In fact, it's been quite the opposite, at least recently. That’s because Home Depot is fairly busy eating Lowe’s for lunch. In other words, the story of Home Depot’s success is told reflexively as a story of strong housing – a growing economy.

But crediting Home Depot success to only the economy at large is like a verbal tic. Fact is, Home Depot and Lowe's moving up in conjunction would probably imply a rising economy. But the rivals moving at odds simply means that, to a large degree, Home Depot is poaching business from Lowe's.

A common fallacy

That’s always the fallacy with drawing too much from one retailer’s report. A rising tide does not lift all boats. Often, the boats are shooting at each other. Some rise, others sink.

Toward this end, J.C. Penney (JCP) reported early this morning and the proceedings quickly degenerated into a fit of blame and recrimination. Never mind the numbers — O.K., mind: The company lost $586 million for the quarter, with sales down 12%. Former Apple (AAPL) whiz Ron Johnson, kicked from J.C. Penney's corner office in the spring, was all but held accountable for every lost dime, even as new management promised better days. The upshot: J.C. Penney's past, present and future has little to do with the economy.

Even Walmart is not the bellwether it's often taken as.

From false bellwethers, let's make our way to watched pots: specifically, the Federal Open Market Committee. After all, forget Godot – the stock market tends to wait on the FOMC Minutes, with the latest to be released on Wednesday. In preparation, bond yields are rising, the stock market is stumbling and the media fretting. Too often, of course, the anticipation of FOMC minutes is heavy but the substance light. Looking toward tomorrow, there is no way to tell with any metaphysical certitude what will be contained in the notes. But the Fed has been telling us the eventual, unavoidable truth slowly: The days of easy money are all but over.

There is a good chance this is the time, tomorrow the place. Moreover, if it’s not, we will simply fall back into the default mode of waiting for the inevitable. That means that, at best, the stock market will likely continue to exist in a state of suspended animation.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.

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