“Earnings season is always important, but this is probably the most important earnings season we have seen in years.”
Stocks were back on the upswing this week, fueled by an up tick in manufacturing data and a drop in the unemployment rate. For the week, the S&P 500 added 1.4%, the Dow Jones gained 1.3% while the NASDAQ tacked on .6%.
As you can see in the chart below, the market has been on a very bullish run over the last four months, with investors aggressively buying every single short-term dip in the market. That has lifted the S&P 500 back to its recent 52-week and all-time high. Take a look at the chart below.
That bullish action was fueled by anticipation of movement from the Fed, so now that the most powerful central bank in the world has fired its big bazooka, the economic data will begin to once again play a bigger role in asset price movement.
And at the top of that list is Q3 earnings season, set to kick off this week with Alcoa, Inc. (AA) on Tuesday morning. Earnings season is always important, but this is probably the most important earnings season we have seen in years. That’s because unlike the last three years, analysts are projecting an earnings contraction, something we haven’t seen since the financial crisis of 2008 and 2009.
That means actual earnings will be important, but guidance will also pay a big role. There is no other factor as important to the stock market than earnings, and with stocks sitting at a 4-year high on massive central bank interventions, weakness on the earnings front would weigh heavy on the market.
Other than earnings, it’s a slow week for data, with a consumer and inflation report set to ht the wire on Friday. That means earnings and the key technical levels near the recent high will take center stage.
Visa, Inc. (V) has just been killing it this year, with shares up 4.3% on the week and 36% in 2012. Although Visa has seen big gains, the valuation picture still looks solid as earnings and earnings projections have risen as well. Electronic payment systems are red hot as the world continues to abandon paper money. Take a look at the great year below.
Celgene Corp. (CELG) a cancer drugs specialist was also on the move, gaining 3.7% on the week to push its 2012 gain to 17%. Healthcare has been one of the strongest sectors of the year, and that has definitely showed up in this leader in branded drugs. Take a look at the chart below.
And finally, how about some Apple, Inc. (AAPL) talk? After logging a new all-time high above $700, shares have pulled back to $650. I have expressed my concern that this story is slowing down as Apple continues to face insane competition from every direction. Still a good company and stock, but the real gains were made a very long time ago. Take a look at the pullback below.
That’s all for this week, but until next time, here is one of the most bearish and grim economic reports I have ever seen. The election and fiscall cliff are HUGE issues, so anyone getting long ahead of the two is taking on a lot of “event” risk. Enjoy.
Your Investment Partner,
Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment Advisor (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of Trade before spending five years managing equity portfolios for a private investment research company.
Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).