The global headlines are certainly not uplifting these days: Russia-Ukraine, Iraq, Syria, Hong Kong, Ebola, etc. All of these challenges are sources of investor anxiety that have led to bouts of selling pressure on the U.S. stock market in recent weeks. The good news is that even with the sell-off in September through early October 2014, the S&P 500 has not experienced a drawdown of more than 4% since spring 2014, thanks to positive underlying fundamentals.
Earnings season is here and may counteract the negative headlines with another dose of positive fundamental news. Four times a year, financial markets focus on what matters most to stocks: earnings. Over the last four years, nearly 90% of S&P 500 returns have come in or around earnings season, as measured by the pre-announcement season — two weeks before Alcoa reports — through the first four weeks of results. (Alcoa marks the unofficial start of earnings season each quarter because the company is typically the first high-profile firm to report after calendar quarter end.) We expect the third quarter of 2014 could produce another good earnings season, which we believe may positively impact stocks.