Equities – Is the earning season also a hurricane season ?

Nikkei 225 (8.257)  Topix (818)  Dax (4.438)  FTSE 100 (4.228) Dow Jones (8.281)  S&P 500 (850) Nasdaq Comp (1.529)  

We are of course already looking forward, but in the assessment of the markets we need to remember a couple of numbers from last week.

The US retails sales number was even a surprise for the most bearish followed by a natural sell off in the equity markets. But other official forecasts came out. A new, not yet confirmed, official German forecast for the GDP in 2009 is now at -2,25%, Spain changed their GDP forecast for 2009 to -1,6%, down from +1,0%. The forecast for 2010 is now +1,2%, but how on earth can they expect to have positive growth in 2010 under the current circumstances – when and from where should that turnaround for Spain come? It should worry any investor.

The latest joke in the market is, what is the difference between Iceland and Ireland? One character and 6 months…..Yes, it’s a joke right now but I fear how reality looks like in 6 months.

Japan is an endless stream of bad economic news, coming out even below the worst forecast. Today it was announced that property deals plunged 80% in the October – December quarter compared to 12 months ago and even the central Tokyo Ginza district faces falling prices now.

The shocks are so many that we don’t get shocked anymore, but it is impossible to price in. I repeat myself, but I still have the opinion that this is one of the reasons why stocks are overpriced.

Monday morning in Europe is one big cheer after more banking rescue packages. It can be difficult to figure out if existing share holders in banks can profit from the government rescue packages. This should be the only reason for short lived upticks in the banking sector.

For me it confirms that banks are very difficult to get back on track when they are in trouble and how serious the economies are hit. Particularly in the UK, with the crisis of historical dimensions. Also in this sector I would stay out of trouble for my own money.

Macro economic we certainly need to wait for less negative economic data before considering going long stocks.

It leads to the other important factor – corporate earnings. We are now really entering the Q4 result season, mainly from US which will dominate the global equity market this week. Especially during a week with limited macro economic data, the corporate earning reports could make it hurricane season like. 

The company reports I watch are Johnson & Johnson on Tuesday, on Wednesday it is Apple Inc, Thursday its Google and Microsoft ending the week on Friday with General Electric and Xerox Corporation. In addition I find the Nokia results on Thursday very interesting as they tell us a lot about global consumer demand. A range of US banks release their Q4 results as well, with a trading sentiment where share prices in banks have huge swings again, they are worth to follow as well.

Last week US equities tested interesting lows but followed by a rebound so far. Before the bears can roar again a close below 810 in S&P 500 and 7950 in Dow Jones is needed. Until then the hopers will feel relief for a short period.

Targets: Nikkei 225 6.683  Topix 697  DAX 3.906  FTSE 100 3.456  Dow Jones 6185  S&P 500 656 Nasdaq Comp 1191

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