Earnings to Disappoint?

Monday is the official start of earnings seasons, which means Alcoa [AA:NYSE] is set to report. And leading up to today, the US markets shone, surging over 5 per cent. What a great way to kick off the third quarter. But the move last week is highly suspect.

Analysts have shrugged the rally as a technical bounce, short coverage, and long-only money entering the market. The economic fundamentals have changed little in the past week, so a real turn around in the market must be justified with positive earnings reports, which many don't expect to occur.

The last time earnings seasons hit, Alcoa reported unfavourable numbers, resulting in the stock to drop, along with the market. Historically, earnings seasons has done very little to support market moves, and have provided negative returns during the six weeks, occuring four times a year.

Expecting blow out numbers probably won't be in the cards. Just in the past two weeks, many other large firms have reported with dismal results. Adobe Systems [ADBE:NDQ] and Research in Motion [RIM:TSE][RIMM:NDQ] reported their own quarterly numbers for the spring and both stocks plummeted over the next few days. They may not be the "bell weather" that Alcoa has been designated, but they may be a sign of things to come.

Other big technology stocks are expected to post results in July, including Intel, Apple, and Google. All three stocks have performed differently year-to-date.

Many analysts believe that based on the stock market's move over the past few weeks, expectations have been lowered, but is this truly indicative of how traders really feel?

CNBC says that investors have started to shift focus towards growth in revenue, and not profitability. Cost cutting strategies helped them survive the recession, but now it is time to provide growth. Personally, I don't see many companies filling that expectation; there just hasn't been enough job growth for that.

On the other hand, I have been wrong plenty of times before, so we'll just have to see how this week unfolds. It will be a good one, especially with options expiry just a few days away.