By Louis NavellierWithout a doubt, I always look forward to earnings season. For me, watching my favorite stocks report is like being a kid on Christmas morning. There's something extremely satisfying about watching good stocks unwrap great earnings and seeing their share prices rally as a result. Of course, the warnings for this particular season have already set a rather ominous tone for what's ahead. So hang on -- it's going to be a real doozy sifting through the good, the bad and, well, the ugly.
Let's Start With the BadLast Wednesday the Dow dropped over 240 points thanks to lowered guidance from Time Warner ( TWX), Intel ( INTC) and Alcoa ( AA). Why? By guiding lower they essentially held up a neon sign saying, "Watch out, trouble ahead." This wasn't the first sign that things are going to be dicey this season. Analysts have seen storm clouds on the horizon since the start of the fourth quarter. Look at this: At the beginning of October, the S&P 500 was expected to see a 48.7% increase in earnings. That's a pretty hefty increase! Within weeks analysts revised their estimates to a lower 14.9% increase. Today, the average S&P 500 stock is expected to announce that its fourth-quarter earnings will decline 1.1%. The weak global economy has taken its toll on a number of flagship companies, and it's clear that they will use this quarter to announce additional layoffs, plant closures and extraordinary writedowns.
The UglyIn general, financial stocks, tech companies and large manufacturers are among those in which I expect to see some of the worst reports. There have already been a number of warnings from companies in these sectors: Alcoa, Boeing ( BA), Intel and Time Warner, to name a few. But there are three other companies that I expect to be among the hardest-hit: Bank of America ( BAC), Microsoft ( MSFT) and General Electric ( GE). All three are due to report during Inauguration Week, and I currently rate all of them D-grade stocks.