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Earnings: Mind the Brakes

After stocks fell two days in a row, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) and the broader S&P 500 (SNPINDEX: ^GSPC  ) are up 0.55% and 0.45%, respectively, as of 10:10 a.m. EST.

Earnings: Mind the brakes
(NYSE: AA  ) kicked off the fourth-quarter earnings season with a moderately upbeat report after yesterday's market close. Earnings of $0.06 per share were in line with the consensus forecast, and the company said it expects global aluminum demand to advance 7% this year, up from 6% in 2012. Alcoa shares opened up 2.5% this morning. However, broader optimism regarding company earnings looks unwarranted.

The current forecast for 2013 calls for a 13.3% rise in the S&P 500's operating earnings (15.6% on the basis of "as reported" earnings). It's difficult to see how companies will achieve that with the economy expected to lumber along at a torpid 2% to 3% growth and S&P 500 profit margins near multiyear highs.

In that regard, the experience of 2011 was instructive. In December 2011, analysts were looking for 10.1% growth in both operating and as-reported earnings per share for the S&P 500. How did things turn out? If current estimates of fourth-quarter earnings hold up -- a generous assumption -- actual growth will come in at just 2.6% for operating EPS and a barely positive 0.2% for as-reported EPS. In fact, year-on-year growth in trailing-12-month operating earnings has been decelerating since the third quarter of 2010. In past cycles, a reversal typically has occurred only after growth has dipped into negative territory (i.e., contraction). There is scant evidence that we'll see a different pattern in 2013.

The markets are up big-time so far in 2013, but you could be up much more over the long term. In fact, The Motley Fool wants to give you a 98.79% chance at beating the market. If you're interested in the best odds in the universe -- including more than a 70% chance at doubling the market's return over the long haul -- here's some very good news for you: Motley Fool Supernova is re-opening to new members for the first time ever on Jan. 15! Learn how you can get these kinds of market-beating odds by clicking here now.

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9/28/2016 4:00 PM
AA $9.88 Up +0.23 +0.00%
Alcoa CAPS Rating: ***