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  Morning MoneyBeat: Prepping for Earnings Season

  
  

  • Breakfast

  • Earnings Season

  • morning moneybeat us

  • Stocks

  
  

  By
  • Steven Russolillo
  • CONNECT

  

  Bloomberg

  MARKET SNAP: At 6:00 a.m. ET, S&P 500 futures DowDOW -0.73%n 0.9%. Treasury yields lower. Nymex down $1.09 at $102.75. Gold 0.1% higher at $1312. In Europe, FTSE 100 down 0.6%, DAX down 0.9% and CAC 40 down 0.8%. In Asia, Nikkei 225 down 1.2% and Hang Seng down 0.7%.
  WATCH FOR: August Consumer Credit (3:00 p.m. Eastern Time): seen +$13.5 billion; previously +$10.4 billion. No major earnings reports are scheduled to be released on Monday.
  

  THE BREAKFAST BRIEFING

  Earnings season kicks off this week. For those paying attention, there won’t be much to cheer.
  The uncertain economic and policy environments have weighed on results and have left companies hesitant about the future. Profit growth has fallen into the low single digits in recent quarters. Profit margins have been stretched. And as we noted last week, a record number of companies have slashed their profit forecasts ahead of this reporting period.
  Earnings warnings have now increased every quarter since the second-quarter of 2012, FactSet data show.
  And yet, investors continue to overlook the troubles brewing on the earnings front. Despite the two-week selloff, the Dow is still up 15% this year and sits about 4% off last month’s record high.
  “While it seems odd and disturbing that companies have soured so much on their prospects for the coming quarter, the market doesn’t seem to mind,” Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report, wrote last month.
  Analysts polled by Thomson Reuters expect third-quarter profits to increase by 4.5% from a quarter ago. Sales are expected to grow by 3.0%.
  Earnings figures over the past several years have taken a backseat to the unprecedented amount of Fed stimulus that has poured into the financial system. The growing concern, however, is the focus will shift back to the fundamentals once the Fed eventually starts trimming back its bond purchases. And a look under the hood at those fundamentals may not justify the stock market sitting around record levels.
  Aluminum giant Alcoa Inc.AA -1.01% is set to report its quarterly figures Tuesday. Despite being dropped from the Dow last month, some in the market will still be paying close attention. “Alcoa still matters as a leading cyclical indicator for the global economy, so I always view that as an important data point right in the beginning of earnings season,” said Ian Winer, director of equity trading at Wedbush Securities Inc.
  Yum BrandsYUM -0.46%, CostcoCOST -0.59%, Family Dollar StoresFDO -1.25% and Ruby Tuesday are among the companies on the earnings docket this week. And J.P. MorganJPM -0.93% and Wells FargoWFC -1.26% — the first of the financials scheduled to report — are on tap for Friday before a flood of earnings reports start pouring in next week.
  The market is fixated, right now, on the latest developments in Washington. It isn’t good.
  The earnings picture isn’t much better, either.
  Morning MoneyBeat Daily Factoid: On this day in 1849, American author and poet Edgar Allan Poe passed away at age 40.
  -By Steven Russolillo; follow him on Twitter @srussolillo.
  

  STOCKS TO WATCH

  Investors are likely to closely watch Tesla MotorsTSLA +2.33% shares after the stock lost over 5% in value after an incident in which a Model S caught fire after an accident in Washington state last week. The stock recovered 4.4% on Friday and extended gains in after-hours after Chief Executive Elon Musk released a statement, essentially touting the safety of his vehicles.
  Outerwall shares rose almost 8% in after-hours trading after Jana Partners LLC, an activist investment fund, disclosed a stake in the company previously known as CoinstarOUTR +4.82%. Jana now owns a 13.5% stake in Outerwall and will pursue strategic alternatives, including a sale, The Wall Street Journal reported.
  Late Friday, J.P. Morgan lowered its third-quarter earnings outlook for Alcoa to 5 cents a share from 12 cents a share due to weaker-than-expected aluminum prices. Alcoa, whose quarterly reports once use to signal the symbolic start of the earnings season, was recently replaced on the Dow Jones Industrial Average by NikeNKE -0.76%. The aluminum maker is scheduled to release third-quarter results on Tuesday.
  

  MUST READS (LINKS)

  U.S. Affirms Commitments Abroad: “U.S. cabinet members sought to reassure trade partners that the partial government shutdown won’t affect America’s foreign engagements, after President Obama backed out of two Asia summits to deal with the crisis.”
  Boehner Ties Deal to Talks on Debt: “House Speaker John Boehner said he wouldn’t bring up bills to fully reopen the government or raise the debt limit unless Democrats agree to broader talks aimed at trimming the deficit.”
  Abreast of the Market: Closure Creates an Investor Opportunity: “As they sift through the Washington mess, some money managers think it could be a blessing, at least for their investments.”
  Software, Design Defects Cripple Health-Care Website: “The federal government acknowledged for the first time Sunday it needed to fix design and software problems that have kept customers from applying online for health-care coverage.”
  Wal-Mart Entertains a Pitch: ‘Made in U.S.A.’: “Manufacturers hoping to win business from Wal-Mart are finding a possible advantage if they can produce items in the U.S. The retailer is looking to increase the number of American-made products it sells.”
  Buffett’s Crisis-Lending Haul Reaches $10 Billion: “Warren Buffett tossed lifelines to a handful of blue-chip companies during the financial crisis. Five years later the payoff on those deals is becoming clear: $10 billion and counting.”
  JAL, Airbus Announce Landmark Order: “Airbus scored a landmark order for its jetliners with Japan Airlines9201.TO +3.01% worth more than $9 billion on Monday, breaking into territory long-held exclusively by Boeing Co.BA -0.43%”
  Ahead of the Tape: Dow’s Exiles Often Have Last Laugh: “If past trends hold true…this may be a good time to buy Alcoa and fellow Dow refugees. A study by three researchers in Pomona College’s economics department shows deleted stocks sharply outperform those added. Over five years following an index change, they collectively gained 173% on average compared with 65% for new entrants.”
  Hedge Fund Managed by Star Opens to Institutions: “Star mutual-fund manager Bruce Berkowitz is opening up his nascent hedge fund to institutional investors.”
  Shadow Loans Sound New Alarm: “Debt-laden companies are on track to borrow a record $1 trillion this year in the nonbank ‘shadow lending’ system, and regulators are sounding alarms about one of its fast-growing funders: individual investors.”
  Heard on the Street: A Known Unknown for Oil Prices: “The government shutdown could leave oil traders in the dark. But the need to keep pushing rising U.S. production onto the global market remains clear.”
   COPY http://online.wsj.com/