EmailWith the S&P futures trading 0.3% below fair value, the cash market is set to start the session on a downward note.
Global growth concerns and earnings concerns have gotten top billing as the catalysts for the negative bias. That makes sense. Then again, that has made sense all summer long and yet the equity market still managed to push ahead to multi-year highs.
Whether the market reorients its thinking from central bank support to the weakening fundamental picture remains to be seen. The third quarter earnings reporting season, which begins this week with Alcoa's (AA) report after the close on Tuesday, has the potential to shift the market's perspective.
According to Thomson Reuters, third quarter earnings are projected to decline 2.4%. If, in fact, earnings decline, it would be the first decline in quarterly earnings since the third quarter of 2009.
The expected decline, however, is a known factor for the market. It has been broadcast by us and others for some time now. The earnings factor to watch then may not be the actual results for the third quarter so much as the guidance for the fourth quarter. That's because fourth quarter earnings growth is still projected to be up a lofty 10%.
We previewed the third quarter reporting period in The Big Picture this week.
Turning our attention elsewhere, the World Bank has lowered its growth forecast for East Asian nations and the Pacific region, citing the slowdown in China as a key element in its revised forecast.
Specifically, the World Bank lowered its 2012 GDP forecast for China from 8.2% to 7.7% and cut its 2013 GDP growth forecast by 50 basis points to 8.1%. For the developing East, the World Bank is now projecting growth of 7.2% this year, versus 7.6% before, and 7.6% for 2013 versus 8.0% before.
The updated forecast from the World Bank has reportedly been one of the driving factors this morning. On a related note, crude oil futures are trading 1.5% lower at $88.56 per barrel.
Another item drawing attention is today's meeting of eurozone finance ministers, which will effectively bring the European Stability Mechanism (ESM) into operation. However, questions persist about the efficacy of the ESM since there is still no agreement on bank supervision; meanwhile, it is uncertain what type of demand will exist for ESM bonds.
That is the backdrop for the equity market on this Columbus Day morning. The bond market is closed today and there is no economic data.
