What to look for as earnings season kicks off

NEW YORK -- It was the refrain during the topsy-turvy week in which an announcement by the Federal Reserve sent jittery investors selling off stocks: Wait until earnings season, then we’ll know more.

The Fed had announced its outlook for the economy was improving, and thus was was planning an eventual tapering of its $80-billion bond buyback program. Investors thought it was too early and that the economy wasn’t doing that well.

But Friday’s jobs report indicated that the Fed might have had reason to be optimistic: Employers added 195,000 jobs in June, and the unemployment rate stayed steady at 7.6%. Now investors will look toward earnings season to see if they can really believe Fed chief Ben S. Bernanke about economic growth. The unofficial start to earnings season begins today.

Aluminum giant Alcoa Inc. will be first, reporting its earnings today after market close. Analysts expect earnings of 6 cents a share, but are mostly pessimistic about the company’s outlook: The metals market has been sluggish this year. Moody’s cut Alcoa’s main credit rating to junk in May.

Yum Brands, which owns restaurant chains including Pizza Hut, KFC and Taco Bell, reports earnings Wednesday. Investors are expecting earnings of 54 cents a share, but the company beat expectations last quarter, despite bird flu fears in China that slowed chicken sales.

Restaurant stocks have been strong this year as people are spending more money to eat out, though they seem to be spending on more-upscale restaurants such as Panera Bread and Starbucks, which have seen earnings gains this year.

Big banks report earnings on Friday, with Wells Fargo and JP Morgan Chase & Co. coming in, and analysts are optimistic about what they’ll see. Wells Fargo has been on a tear this year, as consumers buy more homes and turn to the bank for lending. Wells Fargo is the nation’s biggest home lender, and analysts are expecting $0.90 earnings per share. Last quarter, profit rose 22%, its 13thconsecutive rise in quarterly earnings.

JP Morgan, which was distracted in May by a vote to strip Jamie Dimon of his chairman’s job, has also been strong this year, seeing profit rise 33% in the first quarter, to $6.5 billion, as investment banking and mortgage lending have been strong. Analysts are expecting $1.41 earnings per share when the company reports earnings before the markets open Friday.

Other economic news expected this week includes initial jobless claims on Thursday, inflation data on Friday, and the University of Michigan consumer confidence index on Friday.

Next week will see a sea of earnings reports, including Citigroup on July 15, Coca Cola, train company CSX, Yahoo and Johnson & Johnson on July 16 and Bank of America, EBay and Mattel on July 17.

By then, analysts will have more of an idea about whether their panic after the Fed’s announcement was an overreaction. Unless, of course, something happens overseas to change everyone’s mind, including further turmoil in the oil markets because of unrest in Egypt, or more bad news from Portugal or other European countries about their moribund economies.

For the record, 1:10 p.m., July 8: A previous version of this post said analysts were expecting Alcoa to report earnings per share of 8 cents. Analysts are expecting 6 cents a share.

ALSO:

Strong jobs report has Feds on tap to taper stimulus

Part-time worker ranks are growing, jobs report shows

Stocks rebound as jobs report boosts optimism on the economy