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Actionable news in AA: ALCOA INC,

A Dodgy Day

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DOW – 20 = 17,556
SPX – 5 = 2041
NAS – 17 = 4833
10 Y unch = 1.72%
OIL + .61 = 40.33
GOLD + 19.70 = 1259.10

Stocks started the session higher. This morning the Dow was up 150 points for the first hour or so of trade. In the final hour we saw a sell-off that pushed the major indices into negative territory. This kind of trading action makes the recent run-up look like not much more than short covering. With today’s decline, the S&P 500 moved into negative territory year-to-date.

First quarter earnings reporting season is underway, starting with Alcoa’s (AA) results after today’s market close. Actually, we’ve already seen a few earnings, but Alcoa is the traditional start of the reporting season because it used to be in the Dow Industrials and it has the ticker symbol AA. The metals and materials company reported adjusted first-quarter earnings of 7 cents per share on $4.9 billion in revenue.

Earnings fell from 28 cents per share in the prior-year period, while sales slid from $5.8 billion. Alcoa beat on earnings and missed on revenue. The company also said it cut 600 jobs in the quarter, with 400 more reductions planned. And they are considering another 1,000 cuts. Shares have plunged more than 25 percent in the last year amid a prolonged commodities slump.

More important than Alcoa is what we see from the first crop of big banks, including JPMorgan Chase (JPM) and Bank of America (BAC), later in the week. Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group (GS), are expected to report the worst results in over ten years. This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. In other words, the first quarter could be so ugly, they can’t recover in the second half of the year.

Total earnings for the quarter are expected to be down as much as -11% and revenues are expected to be down -2.3%. Wall Street analysts have a tendency to lower the bar heading into reporting season, and then celebrate when actual earnings beat diminished expectations. The negative earnings growth in Q1 will be the fourth quarter in a row of earnings declines for the S&P 500 index.

The headwinds remain unchanged from other recent periods, essentially a combination of Energy sector weakness, the dollar strength and global growth constraints. What corporate CEOs say about the future could be the biggest determinant of whether Wall Street is sold on the theory that the first-quarter will mark the low point for earnings

The U.S. Federal Reserve conducted a closed meeting this morning “under expedited procedures” during which the Board of Governors reviewed and determined advance and discount rates charged by the Fed banks. The event is notable because the last time such a gathering took place was on November 21, less than a month before the central bank’s historic rate hike.

Economic growth is set to slow in Italy but steady in Canada over coming months, while the outlook for developed nations as a...


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