Q2 Earnings Parade Begins

Alcoa, the largest U.S. aluminum producer, kicks off second quarter earnings after the bell. ?Alcoa is expected to turn a second-quarter profit after a year-ago loss. More important than the profits the company will declare is the second half outlook for industrial demand.

A host of companies are reporting this week including Intel Corp., Advanced Micro Devices, Google Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup and General Electric. Needless to say, those earnings might move the pendulum of emotions from wariness of the global economic recovery to expectations that the worst now lies behind us. Thomson Reuters reported that consensus estimates are for earnings on the S&P500 to grow 27 per cent over 2009s second quarter.

Obviously, using the pendulum image in this case suggests that once the earnings parade is over, reality might set back in and the market might end up to where it was just last week. That is assuming that earnings come out topping expectations and propel the markets higher over the next few weeks.

Could a series of encouraging announcements result in more hiring as optimism reigns? This could be the result of the economic outlook reported by management for the second half of the year. If on the other hand, the guidance is cautious and management doesnt know whats coming next, investors will be concerned and this will reflect negatively on the market.

As you know, I am currently fully invested in stocks. The plan is to take advantage of any positive moves in the market by selling at profit some of my holdings in order to build up cash reserves. I do not know what will be the aftermath of the earnings season, presuming the results are encouraging for Q2, reality might come back to hit us after the parade is over.
Do you think positive earnings will soothe the prevailing market fears? Or will European weakness and US unemployment come back into the spotlight?