Market Direction Waits For Alcoa Stock Earnings

Market direction this afternoon continues to stay subdued as investors worry about Alcoa which is due to report earnings when the market closes today. Alcoa kicks off the earnings season for the quarter and there is a lot of rumor about earnings failing to meet expectations. Businesses since 2009 have basically gone through these steps to recover from the recession:

1) Eliminated Staff

2) Cost cutting has been performed

3) Efficiencies among manufacturing and distribution facilities

4) Improved website functionality for order taking and tracking for both business to business and consumers.

5) Reduced salaries and eliminated top manager positions with highest paying salaries.

6) Paid out billions in severance packages

7) Increased costs to consumers and businesses

8) Refinanced medium to long-term debt at historic low interest rates

All of the above have produced the desired effects of bringing larger profits to the bottom line and most businesses have improved from the drop in revenue from 2007 to 2009. So what’s next for businesses? The best year was 2010 when many companies sported 25% jumps in profits. Since then each year has seen a reduction in the percentage of profits moving to the bottom line of businesses. Many analysts have cut their outlook for the upcoming quarter but still many analysts are concerned that earnings will not meet those slashed estimates.

Market Direction and Earnings

In the end it is earnings that drive market direction. Markets can move up on expectations, but to be a sustained rally, earnings within the S&P 500 companies must grow on average 15% in 2013 to support higher market prices and keep the market direction moving up.

Market Direction Carbon Copy

So far today then, we are seeing a carbon copy of yesterday’s market direction which is what was expected. Selling in the morning, a low late morning and then a gradual climb into the close.

Market Direction carbon copy

Market Direction carbon copy

It will be interesting to see the results of Alcoa and the market reaction tomorrow. Meanwhile I did Put Selling on YUM Stock along with Microsoft Stock today.

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