Monday, July 8, 2013

Second-Quarter 2013 Earnings Season

Things happen rather fast and like clockwork in financial markets. We just closed the books on the second-quarter as well as first-half of the year and as the summer doldrums hit investors as well as traders which usually translated into slow summer months as smart money takes a few weeks off in order to enjoy the fruits of their hard work. I am looking forward to it and predict a great summer ahead for myself.

Not all will be that boring and while I join the rank and file among the who-is-who in the financial world I will keep up-to-date with what is happening; we all do and take work with us to our getaway destinations. Today will mark the unofficial start of second-quarter earing seasons in the U.S. with the release of earnings by Alcoa. The next few weeks will be dominated by earnings releases across the world and markets usually tend to overreact to positive as well as negative results which create great volatility and a trader’s paradise.

Alcoa will disappoint investors after the bell today and their third-quarter guidance will be extremely weak which will allow global equity markets to contract during the Asian session for a nice and healthy spillover into Europe and finally cause a weak close in the U.S. tomorrow. Asian markets already closed lower today and Europe finished off their session highs while the U.S. is giving up early gains as well.

Alcoa’s disappointment should set the stage of an extremely weak earnings season as companies are almost out of room to squeeze more productivity out of workers and cost cutting only works for so long before real economic growth is required in order to see an expansion in earnings.

As always companies have prepared for this and guided extremely low hoping that they can beat their guidance in order to avoid even steeper sell-offs in their share price. A lot of managers are compensated based on performance of the stock price which means every attempt to artificially boost it will be taken in order to qualify for hefty performance bonuses.

The absence of economic growth makes it virtually impossible for companies to report much better than lowered expectations as demand was simply not there. Of course there will be a few exceptions, but investors should prepare their portfolios for what should be a rather ugly earning season with huge disappointments in their outlooks for the third-quarter as well as the rest of 2013.

Besides earnings season we will also have plenty of AGM’s taking place around the world and they are always interesting, but only if you attend them otherwise you get rather boring press releases. I look forward to a few AGM’s taking place especially in our portfolio companies and will attend them in order to gather support for potential management shake-ups.

The close in New York is only two hours away and I am slightly excited for Alcoa to report their disappointment in earnings as well as outlook which should give futures a reason to contract. Our performance so far, although in the Top 5% globally, has rather disappointed me and we have six months to churn up the profits our investors deserve.

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