By Nicholas Santiago on July 12th, 2010 3:20pm Eastern Time
Tonight will mark the start of earnings season when the leading aluminum company Alcoa Inc (NYSE:AA) reports earnings after the bell. Many traders and investors are now suspecting since the April decline in the major indexes that the bar has been lowered for corporate earnings. This is certainly true for many of the leading stocks. However, a very strong case could be made that it is all about the strength in the U.S. Dollar that determines where the stock market goes after earnings. Remember when the dollar declines the stock market indexes usually inflate and when the dollar rallies the opposite happens as the stock market indexes deflate. Take a look at today's action for example. The U.S. Dollar is trading higher by 0.23 to $84.20 and most leading commodity stocks are trading lower. Stock such as U.S. Steel Corp (NYSE:X), AK Steel Holdings Corp (NYSE:AKS), and Cliffs Natural Resources Inc (NYSE:CLF) are all trading sharply lower.
Many traders and investors will agree that this inverse U.S. Dollar and stock market relationship will effect commodity stocks, however, it will not effect technology stocks. That is not necessarily true. The markets all seem to trade together. At times certain sectors or industry groups will trade in their own world, however, the bulk of the sectors will trade in tandem with each other.
Intel Corp (NASDAQ:INTC) will report tomorrow after the bell and this will be the next important earnings release. Regardless of what the company reports and says the reaction from the market will likely be determined by the strength in the U.S. Dollar. Should the dollar continue to slide it is likely that the major stock market indexes will continue to inflate. Watch for the opposite effect to occur should the dollar pop or bounce. At this point I'm not sure that earnings really make much of a difference for the overall market indexes as the movement in the U.S. Dollar really inflates and deflates everything.
Comments