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What we can expect from earnings season

A trader works on the floor of the New York Stock Exchange on April 9, 2012 in New York City. With some tough economic news in the last week or so with the jobs report, and today some evidence of a slowdown in China, Wall Street is anticipating modest reports from corporations.

Jeremy Hobson: We'll get earnings later today from Alcoa, the aluminum maker that tradionally kicks off the quarterly season of corporate earnings.

And that's where we'll kick things off with Juli Niemann, analyst with Smith Moore and Company. She's with us live as always from St. Louis. Good morning.

Juli Niemann: Good morning Jeremy.

Hobson: So we've had some tough economic news in the last week or so with the jobs report, and today some evidence of a slowdown in China. Are you expecting a poor earnings season?

Niemann: Well it's anticipation, that's why we've had this four-day losing streak here. Corporations have had excellent profit margins, huge cashflow. For the last four years, they've been slashing and burning costs, laying off, all restructuring. There've been dazzling profits but now top-line growth counts, not bottom-line. Sales have to grow, and that's going to be much more modest and Wall Street really sees that. The whole question is: Who's buying our stuff?

Hobson: And Juli, the people who have been buying our stuff have been coming largely from emerging markets overseas. A lot of the companies that have done well over the last couple of years have been multinationals -- is that going to change now with more a focus on the U.S.?

Niemann: It really is, simply because Europe is in recession again. China, the demand internally is really slowing down for our stuff. Export demand is still there, which is pretty good -- that's keeping them from falling off significantly. But everything we were hoping for internally is not going to happen for the time.

But our economy is still crawling forward. That's the good news. We're only going to see about 2 percent growth, but it's still positive growth. And it is in the cards to stay here. But the big problem is Wall Street's reacting to how much -- jobs data, it was still positive, but the jobs recovery is going to take a long time to recover. You've got 40 percent of the unemployed now out of work for more than six months, and the big realization is that profit margins always drop from the peak. That was in the third quarter of last year to the mean over the time, so earnings estimates are too high, and that's coming down at this point. But it doesn't mean that the bull market isn't in check.

Hobson: Juli Niemann of Smith Moore and Company.

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.
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