January 08, 2013 at 17:47 PM EST
U.S. Earnings Reports: What to Expect from Q4
Investors today (Tuesday) either sat on the sidelines or bailed from markets as Q4 U.S. earnings reports kick off with Alcoa Inc.'s (NYSE: AA ) release after the bell. The Dow Jones Industrial Average was down nearly 70 points or 0.52% by 2:30 p.m., while the Standard & Poor's Industrial Average had slipped 7 points or 0.48%. A few major events in the last quarter could deliver a handful of earnings surprises in either direction. They include the devastating effects from the late-October Superstorm Sandy, the November presidential election, and the down-to-the-wire fiscal cliff talks. Here's what to expect in the coming weeks. U.S. Earnings Reports: What to Watch Wall Street analysts expect the Standard & Poor's 500 Index companies to produce a total of $25.55 in earnings per share in Q4. That would be a 2.8% increase from the same quarter in the prior year, according to data from Thomson Reuters . While results could come in better-than-expected, that's mostly because estimates have been steeply lowered over the past few months. Companies have plenty to blame for sluggish earnings, with uncertainty surrounding the lack of a fiscal cliff deal and the presidential election, and some will claim that those revenue hits are behind them. How markets react will depend on how disappointed investors are with the U.S. earnings reports and if they believe the bulk of the weakness is left in 2012. To continue reading, please click here...
Investors today (Tuesday) either sat on the sidelines or bailed from markets as Q4 U.S. earnings reports kick off with Alcoa Inc.'s (NYSE: AA) release after the bell.

The Dow Jones Industrial Average was down nearly 70 points or 0.52% by 2:30 p.m., while the Standard & Poor's Industrial Average had slipped 7 points or 0.48%.

A few major events in the last quarter could deliver a handful of earnings surprises in either direction. They include the devastating effects from the late-October Superstorm Sandy, the November presidential election, and the down-to-the-wire fiscal cliff talks.

Here's what to expect in the coming weeks.

U.S. Earnings Reports: What to Watch

Wall Street analysts expect the Standard & Poor's 500 Index companies to produce a total of $25.55 in earnings per share in Q4. That would be a 2.8% increase from the same quarter in the prior year, according to data from Thomson Reuters.

While results could come in better-than-expected, that's mostly because estimates have been steeply lowered over the past few months.

Companies have plenty to blame for sluggish earnings, with uncertainty surrounding the lack of a fiscal cliff deal and the presidential election, and some will claim that those revenue hits are behind them. How markets react will depend on how disappointed investors are with the U.S. earnings reports and if they believe the bulk of the weakness is left in 2012.

"The market is usually very suspect of fourth-quarter earnings," Sam Stovall, chief U.S. equity strategist at S&P/Capital IQ, told CNBC. "In Q4, you usually get the lowest year-over-year percent change but the highest variability in returns because sometimes people throw in the kitchen sink. This quarter there was Sandy and the cliff, and to a much lesser extent a stronger dollar, but also a tail wind was the near 8 percent decline in the average cost of oil in the fourth quarter versus the fourth quarter of 2011."

What investors should look for when choosing what to buy and sell is the earnings report guidance.

"Investors will be hanging on every word that companies share about potential for sales growth," John Carey, executive vice president with Pioneer Investments shared with The Journal.

Companies' predictions for 2013 sales and profit will be key to keeping investor confidence while the U.S. economy contends with a debt ceiling crisis, a spending cuts debate, and even lingering fear over a recession.

U.S. Earnings Reports: Who to Watch this Week

Alcoa, reporting today after market close, is expected to report earnings of 6 cents per share in the fourth quarter, a number that has dipped just over the past two months from a consensus of 8 cents.

On average, analysts forecast Alcoa will report revenue down more than 6% year-over-year to $5.61 billion.

What investors will be keeping their eye on is how the anemic global economy, chiefly in China and Europe, will impact Alcoa's earnings report.

Another insight into a likely rough quarter for Alcoa came when Moody's recently warned that it might downgrade the company, citing its heavy debt load as a prime factor.

The other key earnings release this week comes Friday when Wells Fargo & Co. (NYSE: WFC), the first of the big banks, reports.

The fourth-largest bank by assets is expected to report earnings of 90 cents a share compared to 73 cents earned during the same period a year ago.

While Thomas Reuters reports analysts anticipate stronger income, profit margins may be weak.

In the third quarter Wells wrangled with net interest margin, its profit between lending and investing. This grew as the bank's deposits multiplied faster than its loan.

At first glance, that looks like a good thing. But it left Wells sitting on a pile of cash that needed to be put to work, in a market environment that provides paltry yields at best.

Also of note will be the bank's mortgage volume. Strong volume could be another sign the housing market recovery is for real.

Investors will know more about what to expect from companies in 2013 next week when more heavyweights weigh in with U.S. earnings reports for Q4.

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