Dow: 13,345, -129 (-0.95%) S&P 500: 1,433, -9 (-0.62%)
We’ve always believed earnings season should begin with blaring trumpets and some kind of kitschy gift-exchange. Maybe that’s just us. We enjoy the quarterly tradition of public companies divulging their balance sheets and investors reacting aggressively with prompt “buy” or “sell” orders. Today, the 3rd quarter earnings season began with Alcoa – and stocks fell. Then the Federal Reserve released its beige book in the afternoon – and stocks fell more for their worst finish in 3 months. Investors are concerned about the global economic slowdown and their bearishness slammed the Dow down 129 points, its 2nd straight double-digit hit.
3rd quarter earnings’ season kicked off after hours with Alcoa yesterday, stock is smacked today
Alcoa (AA), America’s biggest steel & aluminum producer got smacked on the face by investors’ dollars today because of their down outlook. Alcoa’s stock price (and all stock prices, for that matter) is forward looking (in other words, what you’ve done lately means squat). Future earnings lead to future dividends, which any textbook will tell you is the true value of a stock. Future earnings potential drives a stock’s price, and Alcoa’s warning that growth in steel consumption will fall globally from 7% to 6% killed the stock’s popularity (maybe a another Ironman movie would help). Although revenues (sales in the cash register, before any costs) & earnings (profit, baby) both beat expectations, shares slipped 4.6% today on the downwardly revised demand outlook for steel. We’ve worried all summer/fall about China’s slowing growth, and Alcoa’s drop today is where it actually affects shareholders directly. Investors are expecting revenues and earnings to fall this quarter for the 500 companies of the S&P 500 for the first time since 2009…Chevron (CVX) and other stocks most tied to economic growth fell the most today.
The Fed’s “Beige Book” details “moderate” US economic growth
Eight wonderful times a year, the Federal Reserve, releases its “Beige Book,” analyzing the state of the economy. It’s basically like 50 Shades of Grey for central bank buffs who want to know about the health of various sectors, from car sales to manufacturing. The previous beige book released in July described a “modest to moderate” pace of economic growth and today’s report confirmed that the economy has grown “modestly” since then (the writers aren’t that creative with synonyms). The highlight of the report was the improvement in residential real estate – the housing market that tanked in ’08 has finally started bottoming out this summer and investors are excited by any signs that specific parts of it are getting better. Interestingly, even though the book noted that the economy “generally expanded” and despite the Fed’s recent stimulus effort, investors were not super impressed, selling stocks after its release. Global growth slowdown concerns are real, man.
- Weekly Jobless Claims and a couple of Federal Reserve Presidents speak.
- Should be plenty of econ data and policy speeches to psyche you up for Ryan v. Biden – the VP debate in Kentucky.
- Spain got downgraded by S&P ratings agency to BBB-, one notch below the embarrassing “junk” status – Will markets react to this mostly expected downgrade, or is it already baked into prices?
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