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US earnings season begins — so far, so good

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by Peter Switzer

Day one of US reporting season and Alcoa did better than expected on the top line and the bottom line. It also painted a rosier picture for aluminium, which means we can safely say — so far so good.

In after hours trading Alcoa kicked up over 3.5 per cent and should help our market today.

Early days

Of course this is very early days, but I figure by the end of this week we will have a good idea of how the rest of the reporting will pan out.

The likes of Citigroup, Bank of America and GE on Friday will hold a lot of attention and hopefully make Wall Street end with a big bang on Saturday morning, our time. If this happens it will set us up for a big start to next week.

Top-down, bottom-up

Chief economist Michael Knox from RBS Morgans in Brisbane told me on my Sky News Business Channel program last night that the top-down view on the reporting season, which is driven by economists and strategists, says the slowing US economy will translate into weaker corporate profits.

However, the bottom-up view created by company analysts is at odds with this negative scenario. They believe the reporting season for quarter two will surprise on the high side and will power the S&P 500 towards a target as high as, wait for it, 1300!

The index is now only at 1079 and that would be a 20 per cent spike. I would be happy with half of that by year’s end.

By the way, my charts guy, Lance Lai, also on my program last week said that the technical readings were pointing to a nice bounce for equities.

Great season needed

What we need is a great reporting season so the bounce becomes a new take-off.

There are those who believe the sell-off since April was overdone and driven by alarmists who stressed out excessively over the European debt woes, the US economic slowdown and the Chinese retreat from stimulatory policies.

I’m not getting ahead of myself, but for Alcoa, which is not a really crash hot company nowadays, to kick off reporting season positively, possibly is a really good omen.

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, July 13, 2010