Market Overview

Stock Buying Turns A Touch Tentative As Earnings Season Intensifies

Stock Buying Turns A Touch Tentative As Earnings Season Intensifies

U.S. stocks could churn in defensive action on Thursday, based on early indicators. Two potentially big market tests could be waiting in the afternoon release of Federal Reserve meeting minutes and Alcoa Inc (NYSE: AA) post-close earnings report, as both could offer fresh temperature readings on the economy.

U.S. trading action is tentative in the wake of muddy Asian trading.

Chinese stock markets reopened with mild gains after closure for a week-long holiday. China is lagging the world-wide bounce across stock markets spanning several sessions; the S&P 500 (SPX) and the Dow Jones Industrial Average ($DJI) are up a respective 2.3% and 2.7% this week so far. Japan’s leading equity indexes ended lower, snapping a six-session win streak.

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The country's core machinery orders unexpectedly dropped 5.7% in August from the previous month, according to industry data.

Earnings news—which will only pick up in pace after Alcoa’s unofficial launch to the season after the closing bell—likely continues to grab the broader market’s attention (more on Alcoa below). But the Federal Reserve won’t likely be far behind.

The Fed is due to publish the minutes of its no-action September interest rate meeting this afternoon. Will the notes shed some light on what it may take to nudge the central bank to act yet this year? The potential impact of said minutes may have lost some punch given the weakness of the September jobs report issued about a week ago. That report seemed to take a 2015 hike off the table if you ask many industry analysts (others have not ruled this out).

Then again, global markets have largely stabilized since. I guess, then, the market may be vulnerable to surprise should the minutes deliver greater clarity on timing than is currently expected. Fed speakers today include St. Louis Fed President James Bullard, Minneapolis Fed President Narayana Kocherlakota, and San Francisco Fed President John Williams.


Alcoa Gets it Started. Wall Street could be watching Alcoa’s unofficial kick-off to the heart of the Q3 earnings season today for a sense of China’s ongoing impact on U.S. multinationals. In fact, it’s one of the leading themes of this earnings round and traders wonder if the worst sting from China has yet to be felt in the stock market. Industry analysts believe AA could turn in its first year-over-year profit decline in six quarters when it releases results after the closing bell. It has coped with about a 20% drop in aluminum prices compared with the year-ago period ending in September.

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Analysts reporting to Thomson Reuters are anticipating that per-share earnings will come in at $0.14, down 55% on a year-over-year basis. They peg revenues at $5.69 billion, which would be off 9% from the year-ago period. AA has typically beat earnings expectations—in 12 out of 13 quarters, in fact— but missed last quarter.

Rethinking Rates. HSBC for one is out with a revised Fed and interest rate outlook. Analysts there now feel the Fed won't be as aggressive in raising rates and bonds will be supported by accommodative policy from the European Central Bank.

The benchmark U.S. 10-year yield has already shaved 26 basis points just since the middle of September, the day before the Fed left its record low benchmark rate unchanged and stated recent global developments "may restrain economic activity...and are likely to put further downward pressure on inflation." HSBC now sees 10-year Treasury yields ending the year at 2.1% and falling to 1.5% by the end of 2016.

Early Movers: Shares of artisan selling site Etsy Inc (NASDAQ: ETSY) could be on the move Thursday after, Inc. (NASDAQ: AMZN) announced the launch of a rival to the online crafts marketplace called Handmade at Amazon. Etsy's stock went public on April 16, closing that first day at $30, or 88% above its initial public offering price of $16.

This week, it trades near $14, or 11% below its IPO price. Wearable camera maker GoPro Inc (NASDAQ: GPRO) shares hit an all-time low, with financial media negative reviews of its new product line and at least one bearish analyst note that cut its stock price.

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