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Earnings season is upon us. After Monday’s closing bell, Alcoa Inc. (NYSE:AA) unofficially kicked off earnings season, as it was the first Dow Jones Industrial Average member to report results for the April through June period. Much like the mood of the general market, expectations were set low for the aluminum producer. However, major financial institutions are also set to report later in the week and may provide a better picture of the overall market.
A Closer Look: Alcoa’s Earnings Picture>>
Heading into July, renewed slowdown fears and European financial chaos took its toll on second-quarter growth estimates for the S&P 500. Despite growth estimates coming in around 2 percent in the beginning of the second-quarter, they fell to a negative 1.1 percent by the end of June. Since the conclusion of March, only two sectors have seen growth expectations increase, technology and utilities. Investors have been turning increasingly bearish on equities. In a Bank of America (NYSE:BAC) research note released last week, the bank’s Wall Street bullishness on stocks declined for the ninth time in eleven months. The sentiment indicator fell to its lowest level in almost 15 years.
Alcoa Inc. (NYSE:AA) reported adjusted net income of 6 cents per share. By that measure, the company fell in line with the mean estimate of 6 cents per share. Revenue fell 8.8% to $6.01 billion from the year-earlier quarter. HOWEVER, it beat the average revenue estimate of $5.81 billion. Aluminum is experiencing its eighth consecutive year of surplus global production, which continues to drive metal prices lower and hinder Alcoa’s profitability. Citigroup Inc. (NYSE:C) analyst Brian Yu explains, “There’s not much they can do on the upstream. The company continues to talk about their productivity gains, and I think it’s an important and notable effort on their side to lower cash cost, but not enough to offset the sharper drop in aluminum prices,” according to Bloomberg.
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While Alcoa (NYSE:AA) provided a first glimpse at commodity-related earnings, two major financial institutions provide insight on the financial system this week. On Friday, JPMorgan Chase (NYSE:JPM) and Wells Fargo & Co. (NYSE:WFC) both announce earnings. The Jamie Dimon led bank is expected to report earnings per share of 80 cents on revenue of just under $22 billion, compared to a profit of $1.27 per share on $27.41 billion revenue a year earlier. Meanwhile, Wells Fargo, America’s largest home-loan servicer, is expected to report earnings per share of 81 cents on revenue of $21.3 billion, compared to a profit of 70 cents per share on $20.39 billion revenue in the same quarter a year earlier.
Although Wells Fargo is one of the largest banks in the world and a heavy Warren Buffett (NYSE:BRKA) favorite, all eyes will be on JPMorgan’s earnings release and its disclosure about the now infamous “London Whale” trader. In May, Dimon disclosed on a surprise conference call that JPMorgan experienced a trading loss of at least $2 billion. Since then, estimates on the loss have only increased, with some reaching as high as $9 billion. The general consensus appears to be around $5 billion to $7 billion, so JPMorgan’s stock is likely to pop or drop in the short-term based on that estimate range.
Traders looking to play this week’s earnings releases should proceed with extreme caution. Although Alcoa beat estimates in the previous quarter and popped more than 9 percent higher to $10.17 per share, the rally only lasted two days. Since then, shares have fallen about 15 percent and trade under $9. Meanwhile, nothing has truly been fixed in the eurozone, but for those who must trade financial stocks, Wells Fargo has been the leading performer, climbing 20 percent year-to-date.
Marriott International Inc. (NYSE:MAR) also reports earnings on Wednesday, which may provide more hints about the sluggish global economy. The lodging company has more than 3,700 properties in 73 countries and territories around the world. Analysts expect Marriott to report profits of 42 cents per share, slightly higher than 37 cents per share a year earlier.
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