October 7th, 2009 – Aim Small, Miss Small?

A spotlight hits earnings this week as fewer economic reports are on tap. Investors appear to be keeping the big picture in mind as they sift for clues to potential rebound. Of particular focus are today’s numbers from Alcoa – the US aluminum producer. While the bottom line is important to the overall health of a company, the key ingredient to these earnings will be the top line revenue.

Cost cutting and layoffs may have been a way to get the job done and meet goals – similar to the story heard last time earnings were on tap. However, this time around the bar may not be set so low. Investors may not be as easy to impress without seeing some solid top line growth. Government stimulus has likely stoked earnings – as well as housing – for the time being. The true test will be in how industry fares when the stimulus well dries up. Between the incentives to purchase homes and vehicles the infusion of cash may help some companies show positive earnings, but follow through will be important.

Other than earnings, the big story will likely continue to be the US dollar. Any softening of the dollar is likely to lead another revival of commodity and equities gains as the dollar-denominated items become more attractive to foreign investment. Talk of pricing commodities in different currencies following the weaker greenback could also prove detrimental. Alternately, cues for gains in the US dollar could see some investors shedding those same positions.
Past Performance is Not Indicative of Future Results.
Past Performance is Not Indicative of Future Results.

Disclaimer: Futures and options trading involve substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results.