Week Ahead: Alcoa Kicks Off Second-Quarter Earnings Season

Alcoa's report on Monday will unofficially kick off second-quarter earnings season.
By Keris Alison Lahiff ,

The year is flying by. The coming week will see the kickoff to the second-quarter earnings season.

Aluminum producer Alcoa (AA) - Get Report will detail its recent quarterly performance on Monday afternoon. Alcoa's report is unofficially seen as the beginning of each three-month reporting period. 

It's likely to be another quarter in decline, pulling S&P 500 companies into their longest earnings recession since the start of the financial crisis. U.S.-listed companies have seen profits decline for five straight quarters, according to FactSet.

But this might be the beginning of the end to this losing streak. 

"The best thing to say about this streak, the longest since 2008, is that the drop will likely confirm that the 5% year-over-year decline in the first quarter of 2016 marked a trough," said Burt White, chief investment officer for LPL Financial. "Signs are pointing to better times ahead."

Since the first quarter, crude oil has clawed back from multi-year lows, the strength of the U.S. dollar has begun to fade (the Brexit-triggered rally, notwithstanding), and manufacturing sector activity has returned to growth. White predicted the U.S. dollar will turn from headwind to tailwind in the second half of the year. 

Earnings are expected to decline by 4% from the year-ago quarter, according to the Thomson Reuters consensus estimate. As always, though, companies' guidance will have more pull on how markets react this earnings season. 

"It's always about guidance as stocks trade more on expectations for future quarters than on results for a quarter that ended," added White. "Since the Great Recession, earnings estimates for the next 12 months have typically fallen 2%-3% during earnings season. During first-quarter 2016 earnings season, the estimate reduction was at the low end of that range -- an encouraging sign. We believe we will see a similar result this quarter."

Aside from Alcoa, Fastenal (FAST) - Get Report will report on Tuesday; CSX (CSX) - Get Report  and Yum! Brands (YUM) - Get Report on Wednesday; JPMorgan (JPM) - Get Report , BlackRock (BLK) - Get Report  and Progressive (PGR) - Get Report on Thursday; and U.S. Bancorp (USB) - Get Report , Wells Fargo (WFC) - Get Report  and Citigroup (C) - Get Report on Friday.

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The consumer will go under the spotlight this week with retail sales for June and the first reading on consumer sentiment for July both out on Friday. Consumer spending is expected to remain strong, extending gains into the third consecutive month. TD Securities analysts forecast a 0.3% increase in retail sales in June, or 0.5% growth excluding automobiles. 

Inflation numbers for June will be released in the coming week with producer prices out on Thursday and consumer prices on Friday. The effects of lower gas prices are expected to have eased. 

Also on the economic calendar in the coming week: The Job Openings and Labor Turnover Survey for May is set for Tuesday; import and export prices for June will be released on Wednesday; and industrial production for June and the Empire State Manufacturing Survey for July will be out Friday. 

The central bank will be in focus with a number of speeches from Federal Reserve members scattered throughout the week. 

Kansas City Fed President Esther George will discuss the U.S. economy in a speech and Q&A session in Missouri on Monday. St. Louis Fed President James Bullard will address the National Association for Business Economics and Minneapolis Fed President Neel Kashkari will participate in a town hall discussion in Michigan on Tuesday.

Cleveland Fed President Loretta Mester will address the Sydney Banking and Financial Stability and the Australian Business Economists Luncheon in Sydney, Australia, on Monday and Tuesday. Both Dallas Fed President Robert Kaplan and Philadelphia Fed President Patrick Harker will give speeches on Wednesday. Atlanta Fed President Dennis Lockhart and Kansas City's George will speak on Thursday.

The Beige Book, out Wednesday afternoon, will present an anecdotal read on how the 12 Fed districts are faring. The upcoming release covers information collected over the six weeks from mid-May to the end of June. The last Beige Book, released at the beginning of June, characterized economic growth in the 12 districts as modest.

The chances of a rate hike this year have been greatly diminished by recent rough patches in economic data and the uncertainty surrounding the United Kingdom's exit from the European Union. However, a stronger-than-expected June jobs number reintroduced the possibility of a rate hike later in 2016. 

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