2Q13 Earnings Season Begins with Low Expectations

Second-quarter corporate earnings season begins this week, with industrial bellwether Alcoa announcing results today and JP Morgan and Wells Fargo reporting on Friday.  According to Citigroup, preannouncements are the most negative they’ve been since 2009, with a negative-to-positive ratio of 6.5 to 1.  Consensus expectations are for a 0.7% year-over-year rise in earnings, down from the 4.2% growth rate expected just a few months ago.  Companies are experiencing slow top-line growth, expected to be around 1.2% year-over-year for the second quarter, and most earnings gains over the last few years have come from cost-cutting measures rather than significant revenue gains.  The financial sector is expected to be the bright spot of the group, with expectations for about 17% growth in earnings year-over-year.  SNWAM will continue to watch for opportunities in specific names, and believe in those we continue to buy and hold.  Many quarters ago, we shifted our corporate allocation away from global economically sensitive names into more domestically focused tech and retail companies, along with select financials.  We have benefited from this allocation and believe it will continue to prove beneficial moving forward.