Stocks Retrench Before Earnings Season

Stocks are widely down today as investors retrench ahead of earnings season, which unofficially kicks off tomorrow when Alcoa (NYSE: AA  ) reports its fourth-quarter after the market closes. With a little more than an hour remaining in the trading session, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is lower by 58 points, or 0.44%.

A bad earnings season ahead?
While many analysts believe domestic companies grew earnings last quarter since the same period in 2011, they're nevertheless pessimistic about the results. "We suspect earnings season will be a negative for the market overall," analysts at Barclays wrote in a recent report.

The estimates of earnings growth are in the low single digits. Data compiled by Bloomberg pegs the figure at 2.9% for companies in the S&P 500, while S&P's Capital IQ puts it at 3.3%.

The two biggest names to report this week are aluminum producer Alcoa and Wells Fargo (NYSE: WFC  ) . The latter reports on Friday.

To say that Alcoa has had a tough run of late would be an understatement, as the aluminum giant recently saw its shares hit a new 52-week low in November. But as my colleague Dan Caplinger pointed out, there are at least two reasons to expect better things from the company going forward. First, it has made "aggressive moves to bolster its leadership position in the industry," including grabbing up new assets at discounted prices. And second, it's been the beneficiary of various governmental stimulus packages, including China's recent $150 billion infrastructure spending package.

With respect to Wells Fargo, meanwhile, analysts and investors will be watching to see whether it can top its mortgage origination figures from the third quarter, in which it underwrote an astounding $139 billion in residential mortgages -- more than twice the runner-up, JPMorgan Chase (NYSE: JPM  ) . Another focal point will be its net interest margin, which unexpectedly declined by 25 basis points last quarter after the Federal Reserve initiated a third round of quantitative easing.

I'd be remiss not to mention, moreover, the veritable tsunami of information impacting the financial sector that came out today. Among other things, Bank of America (NYSE: BAC  ) settled a long-simmering dispute with Fannie Mae for an estimated $11.7 billion, global financial regulators in Switzerland agreed to ease up on new liquidity standards that threatened bank profits, and a group of 10 mortgage servicers entered into an agreement with regulators related to improper foreclosure practices following the financial crisis.

How to beat bad earnings
At the end of the day, the world's greatest investors don't get hung up on one particular earnings season over another because they buy great companies and hold them for years, if not decades, to come. As Warren Buffett has famously said, the best time to sell a stock is never.

It's for this reason that I urge you ignore the capricious ups and downs of the market and instead follow the advice of David Gardner, one of the best stock-pickers alive today. To gain access to the first comprehensive listing of his selections, check out Motley Fool Supernova, our popular new service that's temporarily reopening to new members next week! The service is so successful that it gives investors more than a 70% chance at doubling the market's return over the long haul. To learn how you can take advantage of this service, simply click here now.

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