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Why Stock Earnings are Irrelevant...This Time -- Barron's Blog
DOW JONES & COMPANY, INC. 12:16 PM ET 1/12/2017
Symbol Last Price Change
AA 33.05down +1.08 (+3.38%)
QUOTES AS OF 03:42:32 PM ET 01/12/2017
Earnings season is beginning--even if Alcoa(AA) ( AA) has abdicated its position as the official starting gun by moving its earnings call to later in the month--and investors will be watching closely to see what companies have to say. Unfortunately, the earnings themselves might not be all that relevant-- something I noted in my Trader column last week- -as investors will be more focused on commentary about the future than what happened in the past. Morgan Stanley's Adam Parker and team explain:

Ultimately, a key to the US stock market over the coming weeks will be how believable the reflation assumptions are that have begun to be priced into markets. Our top-down expectations now embed lower taxes, some stimulus, an increased net buyback despite higher prices, and an oil price and interest curve that help earnings. We do have some modest offsets, with more downside possible if the dollar continues to strengthen, particularly against the euro. Netting it all out, we forecast 18% higher earnings in 2018 than 2016, admitting the timing of Washington impacts is uncertain. The barely positive earnings growth shown YoY this year seems irrelevant to what the market is pricing in, though our best guess is there is near-term downside potential, owing to the fact that many corporates are unlikely to say that recent pricing action has been corroborated by fundamental news. In the end, we are hoping to learn during this EPS season more about what is in the numbers. We know some analysts are assuming lower taxes in 2017, some in 2018 (our base case) and some not all. This may mean that not only is the current EPS season not that relevant, but what's in consensus for the full year 2017 isn't particularly relevant yet either.

The S&P 500 has declined 0.7% to 2,259.02 at 12:11 p.m. today, while the Dow Jones Industrial Average has fallen 154.32 points, or 0.8%, to 19,799.96. The Nasdaq Composite has dropped 0.9% to 5,515.09.

More at Barron's Stocks to Watch blog, http://blogs.barrons.com/stockstowatchtoday/