James

The net income is fair…but do you really expect top line growth to be neutral/bad yet be ignored by the markets? I think top line growth needs to be good for stocks to rally once again. For 2 quarters the markets have applauded cost cutting strategies, now for a confirmation of the economy recovering, top line growth will begin to take precedence…Are you going to go full fledge long into the market now and ditch your neutral ‘derivative short’ strategy?

xxxxxL

One may be enclined to think that banks are the proxies for corporate profits and overall financial health.

The banking sector must perform better and its profits share in the SP500 back to 32 %?
http://research.stlouisfed.org/fred2/series/LLRNPT?cid=93
http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101

Employment must be supportive to profits claims?
http://research.stlouisfed.org/fred2/series/CC4WSA?cid=10

Van

TPC,

Another interesting article…

http://www.thedailybeast.com/blogs-and-stories/2009-10-06/obamas-secret-jobs-plan/

Van

My guess is that when the employment #s improve from less bad to actual growth, it will be the sell the news event to begin the next correction.

Tom Turtle

It seems like Mr. Market at this point is coming to expect better than expected earnings. Last quarter, better than expected earnings were valuable because they validated that companies had stabilized their profit streams in the aftermath of the crisis. It didn’t matter how profits were stabilized. This quarter, I would anticipate more discounting of what better than expected implies for forward earnings, particularly 2010. Improving top lines and management remarks about improving business conditions should bull things up. Flat to falling top lines with E.P.S. beats due to cost cuts should have a muted if not sell on the news effect compared to last quarter.

Regarding the banks…they seem to operate in an alternate reality to the rest of the economy…

Matty

Hi TPC,

In your post about Rosenberg’s views today, you note that investors will be focused on capitalizing on the momentum trade and better than expected margins during earnings season. What about Rosenberg’s cautionary note about an over-extended market?

“Remember what happened in October 1987. Not that we are predicting a market crash, but recall that the massive setback in the stock market back then took place in a quarter when real GDP was ripping along at a 7% annual rate and corporate profits were accelerating at a — get this — 55% year-over-year pace; and that was the quarter that erased a year’s worth of capital appreciation in what was the steepest decline since 1929.”

I know the economic situation is very different today than 1987, but you don’t seem to be particularly cautious at the moment. To me, it just feels like a pivotal juncture where expectations could turn on a dime and focus on broader concerns than quarterly reports.

What you say about the start of earning season makes sense to me – i.e. with financials reporting first, they’ll make sure it looks good. And Alcoa does indeed seem to be setting the tone, as you say. What about 2-3 weeks from now? For instance, what if negative consumer and housing data coincide with some misses from consumer names, which report later in the cycle, correct? Isn’t there growing anxiety about the state of the consumer and unemployment, etc? Do you think the Expectation Ratio trumps such concerns? Do you imagine becoming worried at all as we get further into earnings season?

Admittedly I’m jumpy, and maybe the momentum and beating expectations is what matters for now…

Thanks.