Zacks Earnings Preview: Alcoa and JPMorgan

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Jul 09, 2012, 09:30 ET

CHICAGO, July 9, 2012 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Alcoa (NYSE:AA) and JPMorgan (NYSE:JPM).

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Earnings Season Getting Underway

The second quarter earnings season got underway a few weeks back, but the market typically starts keeping track of the reporting cycle with Alcoa's (NYSE:AA) results after the close on Monday. It is a bit early to draw conclusions about this earnings season, but the early signs do not look that good.

A number of the companies that have already reported results (we have second-quarter results from 26 S&P 500 companies already), and quite a few that have pre-announced, have been painting a less-than-inspiring earnings picture. As a result, expectations have been steadily coming down in recent weeks. Driving these lowered expectations are growth concerns about the global economy given the ongoing problems in Europe, and the slowdown in China and the other major emerging markets.

These problems are not new, but many companies cited domestic strength on the first quarter earnings calls as providing an offset to these global headwinds. Friday's June jobs miss and the sub-par manufacturing ISM report earlier in the week show that the domestic economic may not be entirely immune from these negative global forces.

We will see what the second quarter earnings season has in store for us, but margins have peaked already and top-line gains become difficult to come by in the low economic growth environment. A replay of the first quarter earnings season, which turned out to be better than pre-season expectations, will be the best-case scenario for the second quarter reporting cycle.

Current expectations are bottom-up earnings growth of less than 1%, which has come down substantially over the last few weeks. Half of the sixteen Zacks sectors are expected to have negative year-over-year earnings comparisons, with Finance as the key growth driver this time around despite the massive trading loss atJPMorgan (NYSE:JPM).

For a detailed look on aggregate earnings, please read our weekly Earnings Trends write-up. (2Q Early Signs: Not Looking Too Good)

The economic calendar is on the thin side this week, with hardly any market-moving reports on the docket. Release of the minutes of the Fed's last meeting Wednesday afternoon will be of particular interest to the market as that meeting addressed the question of additional quantitative easing, but ended up extending Operation Twist instead. The recent run of soft economic reports has revived the debate all over again and the Minutes will be parsed to handicap the Fed's future moves.

Sheraz Mian is the Director of Research for Zacks.com.

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