So runs the constant tag line on CNBC…this week. It truly amazes us the superlatives that have been used since the market meltdown last September. “Most important jobs report,” “most significant GDP report,” “most impactful INSERT ECONOMIC REPORT HERE.” Somehow, the financial crisis has ascribed additional significance to every piece of company or economic data due out on the wires. Were these data not important pre-crises? Did no one care about jobs reports, GDP or company earnings in the “good old days?” Of course they did but the media loves to assign a primacy import to all recent public events—we note that many a talking head labeled Michael Jackson’s passing “the most significant celebrity death ever!” As Farah Fawcett fans we take issue. Of course the media fails to realize that by aggrandizing every story they simply marginalize the impact of each successive one. How much bigger could the New York Post have made the front page type when man finally walked on the moon?
OK, enough editorializing. How important is this reporting season? We don’t want to belittle the significance of what companies will be reporting and, more importantly, what they will be projecting over the coming quarter. What is immediately clear to us is that the Market is jumpy and ready to react to the slightest bit of “impactful” data. Recall last week that we hypothesized that this behavior signaled a bottom…or at least an inflection point in the economy. Case in point: Monday morning the futures were down significantly as were European and Asian markets until bank guru Meredith Whitney made positive comments about Goldman Sachs and several banks. Those commentaries alone produced a 100pt rise in the Dow futures. Conversely, on July 2nd, one weak jobs report for June changed market sentiment from fear of growth-related inflation to fear of further economic decline and dropped the Dow 600 points in one week. So, much as we hate to go along with the consensus “wisdom” we do sit in the camp that believes in the importance of this earnings season. At a minimum, it will be a “tell” as to the potential direction of the economy going forward. They key for investors will be to know which company’s reports will be the ones of significance. Last week, Alcoa’s positive earnings were all but shrugged off whereas Chevron’s were seen as a negative harbinger of things to come. The market got it backwards, in our humble opinion and, thus, we caution investors not to react too swiftly to earnings as they roll in.
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