It will be a light start to earnings season this week in terms of volume, with the schedule picking up next week. However, two major reports are likely to provider a sour appetizer for the full meal. Alcoa (NYSE: AA) informally starts earnings season with its report after the close of trading today and then J.P. Morgan Chase (NYSE: JPM) closes out the sweltering summer week on Friday the 13th. I think the ominous implication will be seen as well deserved when the bell rings to close trading on Friday.
When Alcoa reports results, it's usually more pomp and circumstance than significant for the rest of the market. This time, though, I think it matters a great deal. It will not be much of a surprise when the company reports about the impact of lower industrial commodity pricing, as seen in the company's stock chart of the last six months.
In fact, you could argue that Alcoa has priced in a bad case and could actually find positive surprise. However, for the rest of the market, the reality check Alcoa provides should be significant. When it speaks of its outlook, Alcoa is very likely to focus on a decrease in global demand for its products. As it does so, it's very likely to point to European softness, reinforcing the market's concerns about the critically important region. If Alcoa has something bad to say about China, though, well that would probably be more than the market can handle today. Concerns about China have been on the rise with each economic release from the behemoth, and China reports GDP on Friday. If Alcoa also notes American weakness, then the floor may fall out of the stock market Tuesday.
Up until recently, investors had been comfortable enough with economic trouble contained to Europe. However, as it spreads beyond EU borders, it will terrify the market. In fact, that is what we are seeing now. As manufacturing data points started to show softness, the market managed to move forward, ignoring the infection from Europe that I was looking toward for half a year now. But when the EU neared implosion again, the market paid close attention. When infection showed up in the latest manufacturing report, The Report that Shook the World, it got real for American investors. Last week, the Ugly Underlying Trend in Employment added insult to injury. Alcoa's report is only going to reinforce fear about slowing Chinese growth and real impact to the American economy from interconnected trading partners.
We can thank J.P. Morgan Chase for reminding the market that all is never really going to be well on Wall Street, or at least predictable. JPM, one of those too-big-to-fail banks, joined with two more, Barclays (NYSE: BCS) and Bank of America (NYSE: BAC), over the last week or so to remind us of the dangers downtown. We learned that BofA's swallowed poison pill, Countrywide, gave special mortgage deals to Congressional members, those same overseers who later looked into the mortgage masterpiece Standard & Poor's (NYSE: MHP), Goldman Sachs (NYSE: GS) and others molded for financial markets. I'm reminding you that the rating agencies and financial geniuses created the once exotic (now dulled) mortgage-backed-securities and markets that infected the entire financial system under false premise of triple-A credits deep into the real estate downturn.
On Friday, J.P. Morgan reports its earnings results, and at the same time will likely provide intimate details of its recent derivatives losses. It's also the deadline for the big bank to turn over emails sought by the government in its energy market manipulation probe. I don't know how you see it, but I view it as a spoiled dessert served up at the close of a first foul week of earnings season. These two reports should likewise spoil hope of an EPS driven recovery and keep focus on a future that seems to be bleak to me.