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ETF Periscope: Wall Street Lobs Itself a Softball with Low Earnings Expectations

Courtesy of Daniel Sckolnik, Sabrient Systems and Gradient Analytics

"Think left and think right and think low and think high. Oh, the thinks you can think up if only you try!" -- Dr. Seuss

To date, July has not been much of a vacation for investors. After experiencing seven losses out of eight sessions so far for the month, it would seem reasonable to just write off July and head to the beach for a bit.

Yet to do so would have meant missing Friday's nice pop on the equity markets, which showed that Wall Street still considers stocks a viable option as long as the news doesn't scare the players away.

All it took was some positive earnings announcements from key players in the banking industry, relative quiet on the Eurozone front, and indications from China that more central bank stimulus was on the way for its cooling economy. This trifecta of circumstances contributed in a big way to helping two of the three major indexes recoup losses incurred during the prior four sessions, while the third regained some ground.

The Dow Jones Industrial Average (DJIA) ended the week up, though just barely, at 0.2%, while the S&P 500 Index (SPX) notched a miniscule 0.1% gain. The Nasdaq Composite Index (COMP) remained in the red, shedding 1% over the course of the week.

As for the coming week, a slew of Q2 earnings reports will be the predominant focus of investor attention, with no less than one-third of the Dow's constituents scheduled to announce results in the coming week. Additionally, around 80 of the S&P 500 companies will report their earnings. Taken together, there is a huge potential for market impact this week should a clear trend emerge in either direction.

And it might be a reasonable bet to expect that the trend could point towards the upside, at least based on the consensus of analysts that the expectations for earnings and outlooks are skewed extremely low. This potentially sets the stage for a market rally, as it provides companies the opportunity to exceed predictions with only a modicum of recent-quarter success. On the other hand, the downside potential for a sharp drop is limited, at least as far as earnings reports being the driver for a downtrend is concerned.

So far, signs of potential for an earnings-based rally can be spotted. Of the six S&P...
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