Tuesday, October 11, 2011

Dow Five Day Rally Ends; Alcoa Misses 3Q Earnings

From the first indication given by Alcoa (AA) after the bell on Tuesday, this earnings season may not be in investors' best interests.

The world's largest manufacturer of aluminum products reported earnings per share of 15 cents, on analyst expectations of 22 cents per share. Revenue was above estimates, at $6.42 billion on estimates of $6.22 billion, but higher costs and some sluggish sectors crimped income down to $172 million for the quarter.

Chairman and CEO Klaus Kleinfeld made a couple of interesting comments regarding the quarter's results on CNBC, shortly after the data release. Kleinfeld said that "fear is taking a toll," noting the overwhelming sentiment that investors were wary of the crisis in Europe and a potential global recession and noted that Alcoa was a "competent company in a very nervous world.

The stock was being hammered lower in after-hours trading, down

After Monday's huge upside rally, markets seemed hesitant on Tuesday, and stocks traded in choppy, range-bound fashion. The Dow moved less than 80 points from the lows to the highs on the day.

Another factor keeping trading to a minimum on light volume was the debate in Slovakia on the vote to approve an expanded Eurozone bailout fund. Shortly after markets closed in New York, Slovakian lawmakers on Tuesday rejected participating in an expanded euro rescue fund, significant because the measure needed unanimous approval from all 17 currency members.

With tiny Solvakia standing up against bank bailouts and more depreciation of the Euro against major currencies, the breakup of the Euro seems all but academic at this point. It's become clear over the past few months and years that only the Northern European countries are fiscally balanced and able to cope with market pressures, while those in the South - particularly Greece, Italy, Spain and Portugal - do not share the same financial disciple as displayed by say, the Germans.

Without expanded emergency capabilities, European banks will face a liquidity and solvency crisis similar to what happened in the US in the aftermath of the Lehman Bros. collapse and the contagion from it will almost certainly spread globally, though to what degree is as yet unknown.

The Slovakian Parliament decision and Alcoa's big miss on earnings should make for interesting trading on Wednesday in all markets, from Asia to Europe to the US.

Dow 11,416.30, -16.88 (0.15%)
NASDAQ 2,583.03, +16.98 (0.66%)
S&P 500 1,195.54, +0.65 (0.05%)
NYSE Composite 7,161.26, -12.19 (0.17%)
NASDAQ Volume 1,684,082,875
NYSE Volume 4,318,042,000
Combined NYSE & NASDAQ Advance - Decline: 3717-2705
Combined NYSE & NASDAQ New highs - New lows: 37-60
WTI crude oil: 85.81, +0.40
Gold: 1,661.00, -9.80
Silver: 32.00, +0.02

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