Over the years economists have found that certain companies have the presence and market share to highly impact the short-term direction of the market. These companies are crucial to both its respective sectors and investor outlook. As we enter yet another earnings season, followed by a holiday season, these particular companies will be closely watched, as an indicator of what's to come and also for the future growth of other companies. In addition, as we prepare for a very important presidential election and face mounting concerns surrounding the fiscal cliff; investors will watch the following companies as a sign of economic strength, for both the individual company and the companies impacted by its success.
Alcoa may seem like a strange selection as being crucial to the success of the market, but keep in mind it is the first of the Dow components to announce quarterly results and it provides a clear indication of economic health. The basic material company has revenue of nearly $25 billion and has a presence in several crucial industries such as aerospace, automotive, beverage can packaging, construction, and industrial gas turbine. The company releases a very informative quarterly report and is always used as an indication of strength in various industries. During its last quarter the company beat expectations and gave solid global guidance for various industries in the global market. With there being so many questions surrounding the global economy Alcoa will once again be closely watched and will move a variety of stocks whether it be good or bad.
It's no secret that transportation is one of the most watched indicators of economic health, and FedEx is by far the most watched of this group. When FedEx, and the transportation index, is trading higher it's a solid indication of global growth, but when guidance is weak and valuations are declining investors often short the market. FedEx recently cut its guidance stating that the global economy is stalling. This is perhaps our greatest indication of growth, seeing as how FDX has a large presence in all sectors from agriculture, raw materials, and especially retail and consumer demand. The company's stock has since been downgraded on several occasions as its outlook leads to pessimism regarding the overall market. The company's guidance should be closely watched over the next few months, especially into the holiday season, and should be used as an indicator of future trends in the market.
Forget consumer sentiment, economic outlooks, and market performance, because if you want a very clear indication of consumer outlook and behavior then pay close attention to the earnings and guidance of Wal-Mart. The world's largest retailer has nearly $500 billion in revenue and sells virtually everything. The company's strength or lack thereof is a good indication of performance in transportation, drug companies, retail, etc. The company also gives an indication of strength for companies such as Procter & Gamble (PG) and food companies. Wal-Mart also has the ability to boost the economy by hiring additional employees throughout the holiday season. According to a recent report, Wal-Mart is planning to hire more than 50,000 for the holiday rush, more than last year.
The final company sports the largest valuation in the world, with new product launches and heavy demand it's a company that weighs heavily on the direction of the market and the global economy. Apple is the brightest light in the economy, and has built an ecosystem that aids in growth for many companies. The Wall Street Journal reported last Tuesday that Apple's launch of the iPhone could help FedEx boost its sales; and other analysts have argued that the iPhone release could help boost GDP. Never before has there been a technology company with this level of impact. The company has reported nearly $150 billion during the last 12 months, but has created additional revenue for companies such as FedEx, Broadcom (BRCM), and has saved Sprint (S) from the threat of bankruptcy. Apple has achieved this feat with a line of new products, but primarily two products. As we move forward into the holiday season Apple products will be the most sought after and will help in driving the revenue for a variety of companies, not to mention the NASDAQ where Apple's performance can often dictate the day-to-day performance, which also affects investor outlook.
The four companies above are only a few of the key contributors to economic performance. Of course there are others such as Procter & Gamble, General Electric (GE), General Motors (GM) and even large oil companies such as Exxon (XOM), but each of the four companies above control more than its industry. The four companies above control and can change perception, indicate the performance of various industries, along with the trends of global demand and synergy within the marketplace. Therefore, use the strength and outlook of these companies, and use its performance as a sign of what's to come.
Disclosure: I am long AA.