What To Watch For During The Upcoming Earnings Season (AA)

Alcoa AA will be leading off the upcoming earnings season on April 11th. This round of quarterly reports is likely going to be a very significant determinant of where the stock market is headed in 2011. Currently, the S&P 500 is up a little more than 2.50% for the year, after briefly going negative in the wake of the Japanese crisis. Many Wall Street investment banks have very bullish targets for the S&P in 2011, with some observers setting an and of year outlook of 1,500 on the widely watched index. If those prognostications are indeed going to come true, the stock market has a lot of room to run, hence the importance of a good earnings season. Investors are going to be paying attention to companies' forward looking guidance, as well as input costs, which have become a very significant concern as a result of higher commodity prices. Investors are always interested in gaining clarity on corporate outlooks and earnings visibility, but expect more commentary with regard to how individual companies are navigating higher input costs. Expect for companies who talk about some possible margin compression as a result of rising commodity prices to lose favor on Wall Street. Conversely, those companies that are able to pass along the higher prices to their customers because of their superior competitive position, should do quite well. This quarter will likely separate the "haves" from the "have nots." Investors should expect the high quality companies with superior positions in their respective industries to begin to Outperform the lower quality companies. It is the companies with superior pricing power that should be able to most easily shrug off rising input costs.