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Macro View

Alcoa’s positive results may not have much relevance beyond the basic materials and commodity sectors, but it nevertheless provides further evidence that it may not take much to reassure investors on the earnings front given how low expectations have dropped.

It is perhaps premature to expect the earnings season to put a stop to the stock market slide of the last few days. But given the subdued expectations, earnings reports are unlikely to produce more pain for the market, either.

While the pullback was not unexpected following uninterrupted gains of the last six months, some have started calling it a repeat performance of last year when the market lost momentum around this time after a strong start. I am hesitant to say that ‘this time is different,’ but the similarities are only surface-deep. For starters, the U.S. economy is on a lot stronger footing this year than was the case last year, with multiple areas of fundamental support. Momentum in the labor market, despite the March jobs miss, appears to be a lot more sustainable and entrenched, helping improve the prospects for consumer spending.

And while Europe has re-emerged as a cloud in recent days, centered this time on Spain, the threat it poses to the U.S. and global economy are magnitudes lower than the existential concerns about the common currency union last year. Bottom line, the stock market slide of the last days may actually be the pullback that many had been looking for, but it is unlikely to prove as enduring as what the market faced last year.

As mentioned at the top, Alcoa provided a good start to the first quarter earnings season after the close on Tuesday by coming out with better-than-expected results and guiding towards strong demand outlook for aluminum. It is still early going in the reporting cycle, but we got two major pre-announcements this morning – a negative one from Nokia and a positive one from Chevron .  We also have a solid earnings report this morning from Titan Machinery , the farming and construction equipment maker.

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