10/10/2011
By Brian Sozzi, Research Analyst

Now that the much ballyhooed September employment report is out of the way, it's back to zeroing in on miniscule EU details and the start of third quarter earnings season.  Give yourself a fighting chance to begin the week by reading my Monday morning market tour!

* U.S. investors, if they didn't get the alert on their Blackberries yesterday, awake to news that the EU is open to bank recaps (down the line, not today...remember this saga has stretched out for 19 months so where is the hurry, right?).  To this interested observer, is this a signal that officials are readying for a Greek default?  After all, a default for Greece would punish undercapitalized banks...so why not firm up their balance sheets beforehand.  Note that Sarkozy did refrain from language this weekend that the EU mustn't let Greece "fail."

* I hope that coffee percolator is primed and ready to rock as earnings season kicks off with Alcoa (AA) this week.  All earnings seasons are fundamentally the same in terms of company report dates, but each has their own unique feels.  Earnings season this time around will battle a couple of tectonic forces, including:
                        * Sharper sequential profit growth slowdown; S&P 500 earnings projected up 14% (was 16% estimate at July end), down from 19% in 2Q and 20% in 1Q.
                        * Are warnings priced into valuations?
                        * Will there be as many warnings as the market has priced in?
                        * Does the market trade up on specific company misses and warnings? (that  would be a tell that valuations are attractive) 

* German 10-year bond yields at five-week high. Cleanest shirt in the EU closet looking a touch dirty.

* Has been quite boring of late as it pertains to commentary from retail management teams.  But, here is finally something interesting to focus on from the upcoming earnings reports (starts officially with Coach later this month):
                        * "Investors will be on the lookout for signs that department stores in the U.S. may be cutting back their wholesale orders for 2012."  Top brands still would be relatively unscathed, but a Jones Apparel Group (JNY) could feel the effects.  In doing so, it would fit with what I have heard from department store contacts over the past month, which is sparse traffic to moderate sportswear section and ensuing aggressive discounts.  Middle America consumer weakness written on the walls here.

* From the July peak, shares of Burberry are down 25%, a clear sign that the accessible luxury segment may pullback further this holiday season.   The company's earnings report is due out this Wednesday, so watch for derivative play on Coach (COH).

* For each positive aspect of the September employment report there was a reason for the market to interpret it negatively:
                        * Positives: 103,000 jobs created following a definitive August economic speed bump; 99,000 in upward revisions to July and August figures; labor force expanded by 423,000.
                        * Negatives: Unemployment rate stuck in the mud at 9.1%; job creation running slower than what is needed to bring down unemployment rate; U-6, or underemployment measure, continues to be worrying.

* On a lighter note, the Greek soccer team is just a point away from qualifying for Euro 2012. 

Brian Sozzi
Wall Street Strategies

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